Why Talent Analytics Matters to Management
In an economy where people are our greatest assets, why hasn’t there been more emphasis on measuring our investments in people? Or better yet, our returns.
Enter Talent Analytics
It’s no secret that 64% of CEOs say creating a skilled workforce is an important priority for their organization over the next three years. But with over 30% and 40% of organizations citing leadership and talent analytics as their largest capability gaps, there will be a huge challenge for organizations to understand where they’re devoting their limited resources to and how they can close these gaps.
Talent analytics give us a sense of how we’ve been managing our workforce and if we’re getting better. But without tying these metrics back to financial outcomes, we don’t know if these things are actually helping the business, hurting it, or worse, not affecting it at all.
By linking our talent metrics back to business outcomes, we can ensure we invest in the most strategic, value-add avenues as proven by data, instead of relying on intuition-driven metrics that may have little to no correlation to company performance.
The Great Measurement Divide Between Talent Management & Finance
Take Google for example. After extensive analysis, former Google SVP of People & Operations, Laszlo Bock, revealed to The New York Times that their practice of assessing GPA scores and asking notoriously difficult brainteasers during interviews, actually revealed itself to be a “complete waste of time” that “didn’t predict anything”. When even data giants like Google fall into this trap, it tells us that the answer is not in the volume of data you have but in the ability to connect the right kind of data in a meaningful way.
In the financial world, there are a number of common benchmarks used to assess the overall performance of a company. Everything from profitability benchmarks to liquidity measures right down to leverage ratios. In essence, these metrics use a common language to translate operational and strategic decisions into business outcomes.
Wherein the world of talent management and HR, there are far fewer universal benchmarks. Of the ones that do exist, many focus on what goes in — cost per hire, attrition rates, time to fill open positions, training dollars spent per employee — but not necessarily what comes out. Without seeing the output, how can organizations be sure if their investments in people are actually paying off?
Dr. John Sullivan, an internationally renowned thought leader from Silicon Valley and a Professor of Management at San Francisco State, wrote a great piece titled “Financial Snapshot: 3 Metrics With Insight Into Talent’s Impact”. And it got me thinking.
Financial Ratios and their Talent Metric Counterparts
The two worlds are really not all that different. They both have similar measurement objectives in mind — productivity, payoff, ability to convert resources, and risk. By understanding these overarching objectives, you can begin to see the parallels in both worlds. I will demonstrate by explaining how four of the most common types of financial ratios can be translated into talent metric equivalents.
Measurement category: Operating performance
Objective: To measure how productively a business can use its resources to generate sales
Talent Metric: Revenue per employee = Revenue/Number of employees. This commonly used productivity metric allows management to assess the average contribution made by an employee to the company’s growth.
Measurement category : Investment Valuation
Objective: To measure the value of an investment expected to generate returns over time
Talent Metric: ROI = Profit or EBITDA/Total Workforce Expense (all employee-related expenses including compensation and benefits). This metric serves as a proxy for both workforce efficiency and valuation by comparing the bottom line output to the cost of maintaining your workforce inputs. For every dollar you spend on new headcount, could you assume a proportional increase to your bottom line? If not, where is the point of diminishing return?
Measurement category: Liquidity
Objective: To measure the company’s ability to pay off its short term debts by converting its liquid resources
Talent Metric: Adaptability Index. This metric is much more subjective and qualitative than the others but it captures the idea of being able to move your people resources around to ensure organizations can explore the right business opportunities. Sales organizations will have different criteria and characteristics for assessing how adaptable its workforce is than those in a hospital and those in a manufacturing business. That said, this metric will differ for every business.
Measurement category: Financial risk/leverage
Objective: To measure the risk that a company will be unable to meet its financial obligations
Talent Metric: Talent Dollars at Risk. This metric requires you to think of financial obligations as business opportunities. Who are your company’s worst performing managers by measures of voluntary staff attrition? How many of your revenue-generating performers are under their scope? These are the talent dollars at risk if you were to presume that your poor performing managers would inevitably drive away your talent — and the revenue dollars they take with them.
Defining your Success Measures
Being able to translate talent metrics into business outcomes in a quantifiable way is the only way to truly know if your people strategy is working. While metrics vary from business to business, the underlying concept is to figure out what’s important from a business perspective, identify the drivers, and then marry those drivers to your talent data. After all, people are an organization’s largest investment. Don’t you want to know if they were worth it?
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I would love to get your thoughts on the kinds of talent data challenges that exist in your organizations and the metrics you’ve seen used to manage a workforce. Do you find that these metrics are mostly cost-driven rather than value-focused? What’s been the most useful metric in guiding your people decisions?
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A data-driven organizational strategy enthusiast by passion and a CPA, CA by training, Cindy often writes about the changing dynamics of the talent pipeline and has presented an award-winning vision for the future of work. As the Founder of TalentTapt.com, she’s made it her mission to map motivation through data and is currently building the largest grassroots repository of motivational profiles of its kind with The Talent Map Project — empowering people to bring their best to the organizations of tomorrow.
Visit TalentTapt.com to take the 5 min survey to contribute your motivational insight & redefine the #FutureOfWork. Feel free to check out our blogs & research at TalentTapt.com, follow @talentmapproj, or connect via LinkedIn or Email
Originally published at https://www.linkedin.com on August 31, 2014.