Solange Charas, Ph.D. is chief executive officer (CEO) of Charas Consulting, Inc. In her career, she has served as a chief human resources officer (CHRO) and corporate board director, her research has been published in Harvard Business Review and The Corporate Board magazine, and she has appeared on Bloomberg Business.
JATHAN JANOVE: Senior human resources (HR) professionals often complain about not being treated as strategic business partners by organization leadership. Why is that?
SOLANGE CHARAS: Corporate executives and board members frequently view HR as too subjective, too “touchy-feely,” which is not how they typically view other departments and positions.
JJ: What should HR do to overcome this problem with how they are perceived?
SC: Learn to use and apply employee metrics so that they can better demonstrate the economic impact HR has on operating results. Research shows that 55 percent to 85 percent of company revenues goes to employee costs. This expenditure creates a great opportunity for HR to demonstrate its value. HR can help the CEO and other top executives maximize the return on that huge human capital investment.
JJ: What metrics should HR measure?
SC: Fellow researchers and I developed an assessment tool that asks employees a series of questions on three fundamental areas: jobs and the people in them; organization structure (or how work gets done); and management effectiveness, both in leading the organization and facilitating work product. Some of the questions we ask include
- Workflow: How is the work being done in the organization, and is it effective?
- Employee productivity: How well do employees function in relation to their jobs and teams?
- HR Infrastructure: Do HR programs such as training and development, performance reviews, and compensation enhance employee productivity and engagement?
- Organizational and managerial justice: Do employees perceive that the organization and their direct supervisors treat them fairly?
- Managerial effectiveness: How well do the organization’s leaders coach, mentor, and motivate employees to pursue a shared vision and goals?
JJ: What do you do with the data?
SC: Several things. There’s a macro analysis and a micro analysis. We address questions such as
- What drives the company’s economic engine? Most companies say that people are their greatest asset, yet they don’t know how to generate a number around this, and don’t show concern that their “assets” come to work every day. A data-driven approach identifies the degree to which people drive economic value creation, and how.
- Management and employee alignment: Are we talking about one company or two? Do managers have a different view of the organization than employees? If so, what can be done to get everyone on the same page?
- Voluntary attrition: Are employees you want to keep leaving (and taking their knowledge base with them)? Voluntary attrition is probably the most powerful value detractor for an organization. Replacing these employees can cost anywhere between one to eight times their salaries before they are up to speed and productive. And the fastest way to get people to leave is to create a climate where employees feel they’re not being treated fairly compared to their peers inside or outside the organization.
- Is the company’s organizational structure impeding achievement of its own goals? One of the most important lessons I’ve learned is that employees inherently know how to make their teams more productive. Eliminating unproductive tasks and/or reorganizing the way work is done can have a huge impact on productivity.
- How strong is employees’ sense of purpose? I believe that management has a fundamental duty to help employees understand the impact of their work. Instead of simply having a job, employees need to be able to connect with their work and how it supports the goals and vision of the organization, and have a sense of purpose and connectedness.
The process of HR analytics is like an hourglass.
At the top end, you pour in the data and information. In the narrow middle or waist, you identify the real drivers, the key difference-makers, and where the greatest potential payoff is. Once you identify the key systemic problems and address them, the impact on the overall business is like the bottom of the hourglass—far-reaching in the business process.
JJ: Can you share an example?
SC: We worked with a pharmaceutical company that had 350 senior-level managers worldwide. This group had a high attrition rate compared to the industry—at the time 8.5 percent annually. Costs were high for this organization not only because of the loss of key talent, and their institutional memory, but because at this senior level, talent is harder to identify and more expensive to recruit. After analyzing the data, we learned that a key attrition-driver was lack of succession planning, communication, and a demonstration that there were career opportunities in the company. Managers felt plateaued and many chose to leave. Once we identified the systemic problem, we developed interventions to address it, including career paths and career tracking programs, communications strategies for enhancing employees’ ability to identify their desired career paths, and establishing a talent inventory with pre-identification of candidates for promotion from the entry level up through the senior ranks.
JJ: What were the results?
SC: Retention improved. Plus, there were other benefits. Internal promotions increased, creating career path opportunities for those promoted into the senior positions as well as for those promoted into the positions vacated. Morale improved. Promoting existing employees meant shorter learning curves and reduced vacant job time, which increased efficiency and productivity. Moreover, this change greatly reduced the company’s reliance on external headhunters. On this metric alone, the company achieved a 10:1 return. Within six months, a $250,000 project investment resulted in a $2.5 million reduction in headhunting costs.
JJ: What if I’m the head of HR at my company, but don’t have the background or aptitude for metrics. Am I stuck?
SC: Not at all! Think of a sports team. Not everyone plays the same position. But a good coach meshes the various positions to build a successful team. You might hire a quantitative analyst or engage a consultant to support HR’s diagnostic efforts and continually gather and analyze the data and what the data reveals about the relationship between human capital and bottom-line financial performance.
JJ: Earlier, you used the term “employee engagement.” Isn’t that one of those subjective, “touchy-feely” terms that makes executives’ eyes roll?
SC: It shouldn’t! The evidence is overwhelming that there’s nothing soft about the impact of employee engagement. Research has shown that a change of one standard deviation in employee engagement correlates with up to a 40 percent increase in EBITDA (earnings before interest, taxes, depreciation, and amortization). Depending on the standard distribution of scores, that could be as little as moving from 2.9 to 3.2 on a 1-to-5 scale. With Gallup reporting that only 30 percent of U.S. employees are engaged, think of the enormous upside!
If HR wants to be a strategic business partner, it has the leverage to do so. But until HR presents data that drives bottom-line results, it won’t command attention and respect as an equal business partner. So gather the data, analyze it from a macro and micro perspective, and create a narrative about the analytics that resonates with stockholders, board members, and the executive team.