Business Acumen for HR Professionals Laurie Bassi CEO, McBassi & Company October 17, 2013

Today’s Discussion Context Components of Business Acumen Strategic Acumen Financial Acumen Planning Acumen Execution Acumen Pulling it all together Q&A Talent Development Reporting principles • CTR 19-May-19

The Ascendance of HR Intangibles drive value. Human capital is the source of all intangibles. Human capital management is now an essential organizational competence. Business acumen is an increasingly important HR competence.

Boston Consulting Group/WFPMA, From Capability to Profitability:Realizing the Value of People Management (July 2012)

We’ve invested on this insight for over 10 years 5

Business Acumen: what does it mean? One definition: keenness and quickness in understanding and dealing with business situations Components Business literacy: the knowledge and understanding of the financial, accounting, marketing and operational functions of an organization Acumen: the ability to make good judgments and quick decisions Today, we are going to provide an overview to Increase your business literacy Connect the dots between HR and the business Enable you to increase your value to your organization Talent Development Reporting principles • CTR 19-May-19

Four Elements Business Acumen Strategic acumen: The ability to develop aligned and relevant business strategy to advance the organization’s success Financial acumen: the ability to interpret financial data and how to act on it Planning acumen: the ability to develop cohesive business plans that translate the strategy into action Execution Acumen: the ability to execute the business plan to achieve financial and strategic goals Strategic Acumen Business Acumen Execution Acumen Financial Acumen Planning Acumen Talent Development Reporting principles • CTR 19-May-19

Strategic Acumen Talent Development Reporting principles • CTR 19-May-19

Questions What do we mean by strategy? Where can you get information about the business strategy? How does HR influence the strategic business objectives? What do senior business leaders want to see from HR? Talent Development Reporting principles • CTR 19-May-19

Strategic Direction: 4 key elements The mission: what will be achieved? The value network: with whom value will be created and captured? Strategy: how resources should be allocated to accomplish the mission in the context of the value network? Vision and incentives: why people in the organization should feel motivated to perform at a high level? Mission & Goals “What” Value Network “Who” Alignment Strategy “How” Vision & Incentives “Why” Source: http://blogs.hbr.org/2007/09/demystifying-strategy-the-what/ Talent Development Reporting principles • CTR 19-May-19

Elements of A Strategy Objective: a definition of the ends that the strategy is designed to achieve and by when Scope:  the part of the landscape in which the firm will operate Advantage: What your business will do differently from or better than others  “If you don’t know where you are going, any road can get you there.” ---The Cheshire Cat in Alice and Wonderland by Lewis Carroll Talent Development Reporting principles • CTR 19-May-19

How Can You Learn About the Business Strategy? Can you state your company’s strategy? Public information provides insight about your company’s direction The company website The annual report Analyst reports Obtain, review and ask questions about the strategy; talk to your manager HBR: July 2010 Talent Development Reporting principles • CTR 19-May-19

What Drives Strategic Decisions and Investments? Types of Decisions Goals of Corporate Decisions Goals of HR Decisions http://www.mckinsey.com/insights/strategy/how_companies_make_good_decisions_mckinsey_global_survey_results Talent Development Reporting principles • CTR 19-May-19

How Does HR Contribute to Strategic Business Objectives? Creates the enabling capability: Talent from within or outside Employee growth and development Policies and practices Rewards and incentive Ideally, involved in creation of the objectives as a valued, strategic business partner Examples Moving into new markets What talent is required to be success in the new market? What is our build vs. buy strategy? Acquiring a new operation What is required to onboard the new employees? How do we align our performance and pay systems? Transforming the business How do we create change-ready leaders? How do we sustain engagement during change? Talent Development Reporting principles • CTR 19-May-19

What Do Senior Leaders Want to See from HR? Alignment of HR initiatives to their goals Help in setting aggressive yet achievable goals for the organization Help in long-term planning Help in analyzing & mitigating risks Talent Development Reporting principles • CTR 19-May-19

Financial Acumen Talent Development Reporting principles • CTR 19-May-19

Questions How do companies keep score? How do businesses make investment decisions? What do senior leaders want to see from a financial perspective? How does HR influence the financial statements? Talent Development Reporting principles • CTR 19-May-19

How Do Companies Keep Score? Accounting is a method of keeping score in business Uses dollars as the basic score. Financial reports are used to present the score Balance sheet Income statement Cash Flow statement A variety of ratios, percentages, and other tools are used to analyze the scores. Role of GAAP/IFRS Financial statements enable investors to assess how effective a business is at providing them with a return on their investment http://www.alpineguild.com/how_to_keep_score_in_business.htm Talent Development Reporting principles • CTR 19-May-19

What can we learn from the balance sheet? Assets = Liabilities + Capital Shows the financial position of a company at a specific point in time. The balance sheet balances Left side: assets (things of value owned by the company) Right side: liabilities (debts the company owes) Below liabilities: capital (the amount belonging to the owners after liabilities are subtracted from assets). What can we learn from the balance sheet? Talent Development Reporting principles • CTR 19-May-19

What can we learn from the income statement? Summarizes the results of a company's operations over a period of time The income statement includes: Sales Cost of sales Gross profit (#1- #2) Operating expenses Operating profit (#3 - #4) Non operating expenses Net profit before taxes (#5 - #6) Taxes Net profit after taxes (the bottom line) (#7 - #8) What can we learn from the income statement? Talent Development Reporting principles • CTR 19-May-19

Cash Flow Statement The cash flow statement tells you what is happening to cash and if there is adequate cash flow to pay the expenses as they arise The cash flow statement includes: How much cash is generated from a company's products or services (cash flow from operations) Use or sources of cash from purchasing (or divesting) of new equipment, buildings or short- term assets such as marketable securities Cash (in or out) resulting from debt, loans or dividends  Talent Development Reporting principles • CTR 19-May-19

What Do We Learn from Financial Statements? Balance Sheet How much do we have invested in assets? What is our current level of obligations? What is the level of owner’s equity? Income Statement Did we make a profit last year? Over the past three years, did our profits grow at the same rate as our revenues? What is the total of our expenses for last year? Cash Flow Statement How much did we invest in our equipment? How much did we repay on our bank note? What portion of our expenses went toward depreciation? A company’s financial statements show you where a company’s money came from, where it went, and where it is now. Talent Development Reporting principles • CTR 19-May-19

How Do Companies Make Investment Decisions? Detailed financial model of decisions (e.g. ROI,NPV, IRR,) Comparable situations from respondent's or firm's experience Examination of project risks along with risks of other projects in firm's portfolio Sensitivity analysis and financial models of the risk Global Survey: McKinsey & Company , 2009 Talent Development Reporting principles • CTR 19-May-19

How Does HR Influence the Financial Statements? Income and Cash Flow Statements HR costs are included in Overhead or SG&A (Sales, General & Administrative) So higher HR costs lead to higher total costs which lead to lower profit However, HR initiatives will also increase revenue and reduce costs So, properly designed, the net benefit of HR should increase profit Balance Sheet The higher profit due to HR initiatives will increase retained earnings Unfortunately, since the Balance Sheet does not include human capital, the impact of HR initiatives does not increase the reported value of assets Talent Development Reporting principles • CTR 19-May-19

What Do Senior Leaders Want to See from HR? Business case for key initiatives showing expected impact, dollar benefit, total cost, and net benefit or ROI How can you help me increase revenue? How can you help me reduce costs? Basically, bottom line impact Also interested in a reduction in opportunity costs Like the value of the reduced time spent in training using WBT instead of ILT (assuming WBT can accomplish the same) Talent Development Reporting principles • CTR 19-May-19

Planning Acumen Talent Development Reporting principles • CTR 19-May-19

Questions What is included in a robust business plan? How does HR contribute to the business plan? What do senior leaders need from HR? Talent Development Reporting principles • CTR 19-May-19

What Is A Business Plan? What Is Its Purpose? What it is: A formal statement of a set of business goals, the reasons they are believed attainable, and the plan for reaching those goals. May also contain background information about the organization or team attempting to reach those goals. Purpose: A decision making tool for a defined audience Talent Development Reporting principles • CTR 19-May-19

Elements of A Business Plan What’s included? Specific, measurable goals Critical success factors Assumptions Identification of risks Discussion of new products or services Strategy and implementation plans Financials Request for resources Staff, capital, budget May include intermediate goals required to reach the high-level goals Development of a new product, a new service, a new IT system Finance restructuring Refurbishing a factory Restructuring of the organization Talent Development Reporting principles • CTR 19-May-19

How Does HR Contribute to the Business Plan? HR needs to have one! HR should use the same planning process as everyone else and be held to the same standards Implication: HR develops specific, measurable goals HR will contribute to the business plan of other units by enabling them to achieve their goals HR initiatives will support their goals Depending on the funding model, costs for HR may be part of the unit’s costs Talent Development Reporting principles • CTR 19-May-19

What Do Senior Leaders Want to See from HR Plans with Specific, measurable goals Expected outcomes Effectiveness goals Efficiency goals Total costs Business case for the proposed investment At least for the expensive initiatives Basically, that you are willing to play by the same planning rules as everyone else Talent Development Reporting principles • CTR 19-May-19

Execution Acumen Talent Development Reporting principles • CTR 19-May-19

Questions What process should an organization use to ensure it delivers to planned results? What do senior leaders want from HR? Talent Development Reporting principles • CTR 19-May-19

What Is It? Why Is It Important? What is included in execution acumen? Function leadership: The ability to effectively and efficiently manage your unit / department / BU to deliver the planned results Leading & driving change: The ability to bring about strategic change, both internally and externally Project leadership: The ability to effectively and efficiently lead initiatives, manage stakeholders, and take action Why is it important? Ensure that initiatives realize their goals with the anticipated resources in the planned time horizon Talent Development Reporting principles • CTR 19-May-19

Critical Execution Elements Set clear goals and expectations Establish clear accountability for results Provide the necessary support for your team Schedule monthly meetings to review progress against goals and take appropriate action Will need reports containing the relevant measures Discuss variances Decide what, if any, action is required Learn from variances and surprises Louis Gerstner of IBM called engagement imperative the hard part. It is where strategy execution fails or succeeds. It is where the work required to achieve the goals based on metrics and to transform structure and culture meet the demands of ongoing operations Talent Development Reporting principles • CTR 19-May-19

Example The stats How they execute $14B in revenue in 2012 = 20% growth Over $13B of the transactions on eBay were via mobile devices (estimated at $20B in 2013) Reached over 84M people in August 2013 43% of US adults with annual household incomes of $250,000 or more shopped at eBay over the past 12 months How they execute Clear funding model Budgeting: annually Prioritization: 2 times/year, driven by strategy and business objectives Portfolio process: run quarterly Technology: reviewed annually 180-200 projects per year 20 projects / quarter are changed, modified, deleted or substituted Leverage a shared services model for staffing projects Talent Development Reporting principles • CTR 19-May-19

What Do Senior Leaders Want to See from HR? That a disciplined execution process exists That good decisions are being made No year-end surprises High-level reports or scorecards with plan, YTD results, and forecast Key outcome and impact measures Key effectiveness and efficiency measures Talent Development Reporting principles • CTR 19-May-19

Putting it all together Talent Development Reporting principles • CTR 19-May-19

Question What is the thread across all areas? What role can HR play in tying it altogether? Talent Development Reporting principles • CTR 19-May-19

What’s the Track Record? Only 30% of companies actually reach their goals Only 15% of employees can identify their company’s goals and priorities 51% of employees don’t understand what they need to do to meet the goals 51% work on things that are urgent but not important 81% feel no ownership in getting the goals completed “If path finding identifies a path, aligning paves it. Organizations are perfectly aligned to get the results they get. Think about that. If you are not getting the results you want, it is due to a misalignment somewhere in the organization and no pushing, pulling, demanding, or insisting will change a misalignment.” ---Attributed to Steven Covey Harris Research, 2006 Study Talent Development Reporting principles • CTR 19-May-19

Critical Success Factors Clarity of responsibilities and accountabilities Once made, decisions are rarely second guessed Appropriate metrics and access to data to measure the key drivers of business performance Information flows freely across the organization Organizational discipline in its end to end business planning and execution process From: The Secrets to Successful Strategy Execution; Gary L. Neilson, Karla L. Martin, and Elizabeth Powers; Harvard Business Review, 2008 Talent Development Reporting principles • CTR 19-May-19

What Is Our Role? How Can We Contribute to Organizational Success? . Talent Development Reporting principles • CTR 19-May-19

What Is Our Role? How Can We Contribute to Organizational Success? Our role: Be a valued business partner helping our company achieve its mission and realize its vision How can we contribute? Align initiatives to company goals Get agreement upfront with sponsors on expected impact Create a business case for key initiatives Execute with discipline and deliver planned results Manage the initiatives well Set effectiveness and efficiency goals Talent Development Reporting principles • CTR 19-May-19

Greatest Opportunities for Improvement Adopt a business mindset Focus on alignment, impact, outcomes, cost Do a better job planning Do a better job executing Talent Development Reporting principles • CTR 19-May-19

Advice to Those Who Want to be Promoted Speak the language of business Look for opportunities to get in front of senior business leaders Take on special projects and assignments Get experience outside HR Take (smart) risks Improve your business acumen Strategic Planning Financial Execution Huh? What’s the ROI on HC? Talent Development Reporting principles • CTR 19-May-19

Contact Information Laurie Bassi Email: lbassi@mcbassi.com Phone: (303) 278-8811 Dave Vance: Executive Director Email: DVance@CenterForTalentReporting.org Phone: (970) 460-0123 Peggy Parskey: Assistant Director Email: PParskey@CenterForTalentReporting.org Phone: (323) 931-6589 Talent Development Reporting principles • CTR 19-May-19