People, Systems|

Right now senior leadership in both the business and in HR are leaving value on the table. We have to end the “business as usual,” nonintegrated way enterprise analytics and human capital analytics are conducted.

The lack of coordination is understandable at first glance. People are very busy: dividing business and HR process management and the accompanying analytics up into separate domains makes it easier to tackle the tasks. That way the leadership of the business and the leadership of HR stick to what they know best, including the analytics needed to monitor and assess progress. But the divide-and-conquer approach is precisely where things go wrong.

Both sides ignore critical information needed for a comprehensive, systemic diagnostic. In their annual cycle of budgeting and fine-tuning the strategy, senior business leaders largely ignore the human capital perspective. They think they know the business inside and out, but they have blind spots about the drivers of employee behavior and performance. They usually incorrectly assume that any employee issue can be solved with at most minor tweaks to the work design. Senior business leaders are far removed from HR issues; some mistakenly assume people can be easily manipulated to produce whatever performance is needed.

HR has a different set of blind spots that are just as damaging. They do not make sure that employee behaviors and competencies are aligned with the pressing needs of the business to close strategy execution gaps. When they focus on business-related outcomes, if at all, they often over-emphasize ROI, program efficiency, and financial impacts that can be measured in money terms. They do not focus sufficiently on organization capability that supports competitive advantage.

There is a bit of a chicken-versus-egg challenge in the current situation. Unlike finance, which is deeply involved in measuring business performance, HR historically has rarely had insights it could contribute that would directly inform discussions of strategy execution. The problem is that many HR professionals are not highly analytical. HR has to embrace comprehensive, not piecemeal, analytical approaches, to help the business make better decisions. People in HR have to master their part of the analysis, which requires greater analytic capability than many have today.

HR business partners need to be able to lead analytical processes. A core capability is building and testing causal models. This does not require multivariate statistics skills; it does, though, require the ability to work with statistical experts who can run those models if needed.

HR is not alone in needing to change its approach to analysis and decision making. Senior business leaders share an equal responsibility to achieve better integration of HR and human capital analytics into annual budgeting and strategic decision making. Given the time required to conduct thorough analyses, the organization needs more of an iterative process for making planning decisions throughout the year. Rather than set all budgets and strategic decisions in stone before the fiscal year starts, organizations need to conduct ongoing testing and measurement throughout the year. Mid-cycle adjustments to budget allocations and strategic priorities should be made as needed. The precise adjustments will depend on the analysis results. And HR has to be an integral part of the decision making and execution of planning, analysis, and adjustments, not just a more-passive player that only offers up ideas for approval or rejection and is not part of the core decision making team.

This tends to happen already with very high-profile new ventures, like Boeing’s 787 Dreamliner or Tesla’s Model S. In such cases, the company makes an ironclad commitment to figure out how to make a new business or innovation work. Everyone collectively does whatever it takes to support the new venture, including making mid-year adjustments without waiting for the next annual planning cycle. More problems typically arise with ongoing operations whenever you are trying to grow capabilities while staying within the confines of the annual budgeting cycle. In these cases, senior leaders typically make budgeting and strategic goal-setting decisions without sufficiently consulting HR.

Most enterprise and human capital processes are not managed strategically because the analytics are not integrated. Senior business leaders have to embrace the human capital analytics role HR has to play. HR has to meet the challenge by building analytics capability and more effective processes in its business partner ranks and, where appropriate, in centers of excellence. And everyone needs to work together, applying both the business and human capital analytical approaches in an integrated way.

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