1.   Providing Irrefutable Proof Of The Bottom-Line Business Impact Of Recruiting, Retention And Development Proving that HR programs work to get full funding BPI October 4, 2013
© Dr John Sullivan

2. 4 goals for today
To get you to rethink your current business case approach
To reveal the criteria that executives use to increase funding
To provide examples of how you can effectively show the business impacts of major TM functions
To answer your questions

3. I’m from the Silicon Valley, so I’ll move fast today
For live participants, please submit questions at any time during the webinar

4. The foundation of this approach
I was happy with our HR approach, but now, “I want that one”
CEO of General Mills

5. Begin with the premise that:
Step I
Begin with the premise that:
Executives might not be confident in the metrics and business case approaches that you currently use

6. CEO’s do not have faith in our metrics
Only 12% of CEO’s are confident on the quality of Human Capital metrics
AICPA survey 2012 6

7. How do executive’s rate HR effectiveness on “business case” and metrics? (KPMG)

8. Most HR metrics are weak
Turnover %
Time to Fill
Diversity %
Number of developed leaders
% of engaged employees
They tell about “last year”
and they prove no $ impact

9. Step II
Next… find out if your executives have already determined that your function has a high impact

10. How can you know ?
Percentage of budget increase – what is your percentage of budget increase… compared to well-funded functions (i.e. sales, product development)?
Percentage of headcount increase – what is your percentage of a headcount increase compared to the very best functions?
Exemptions – is your function made exempt from layoffs or hiring, promotion and budget freezes?
Executive’s speeches – are you mentioned in the CEO’s speeches as a high focus area?

11. The best way to know for sure is…
Where does the firm write up and report it’s major business accomplishments /impacts for the past year?
How many lines does your TM function get?

12. Shareholders should hear about TM’s impact
The CEO of this bank saw the connection between great recruiting and business growth…
So he invited the Head of Talent Acquisition to give a presentation at the annual shareholders meeting… on the $ impact of TA

13. Partner with the King of metrics
Step III
Partner with the King of metrics
The CFO is the indisputable determiner of credible metrics and assessing bottom-line impacts

14. The smartest thing I ever did in HR…
“I hired the assistant comptroller to do my HR metrics”
I had zero funding arguments after that because:
The metrics were credible because the CFO and others trusted the person who did them
The metrics used the language and the format that the senior leadership could understand
They included no “soft” metrics or language
P. Wilson, Former VP of HR Oracle

15. Let the CFO guide your metric actions
Involve the CFO’s office from the very beginning
Let them explain “the rules”… including what is (and is not) an acceptable approach for proving bottom-line impact
Let the CFO select your strategic bottom line metrics (3x5 cards) and business case approaches, so that you avoid “so what” metrics
Consider letting the CFO present / report your metrics 15

16. CFO’s care about…
CFO funding decision criteria
An ROI of above 15%
A payback period of 18 months or less
A low initial investment
Immediate start up
No new headcount
A high success rate/ low risk of project failure
Project reassessment points built-in
It reduces overhead costs
Accurate results metrics and counting process
Consequences for failure built in (individual accountability)

17. COO’s must also be influenced
COO key support criteria
It directly impacts key business goals (profit, growth and revenue)
It helps to resolve major business problems
It reduces time-to-market
It provides a competitive advantage
It directly increases innovation

18. Note: The 11 are listed from least to most powerful
Step IV
Use one of these 11 proven business case methods to show your business impact
Note: The 11 are listed from least to most powerful

19. Business case method # 1 Use external data to prove the impact of talent management
Weakness: Our firm is not comparable

20. Investing in HC gives WOW ROI returns
$100 spent on _____
Produces what ___% returns
Financial investment 2%
Capital Improvements*
3.9%
Developing human capital*
8.5%
*A study of 3,000 companies by the University of Pennsylvania cited in Fast Company Aug 1, 2003

21. Employees at top TM firms produce amazing results
Comparing employee performance in the top 25% performing firms versus… the bottom 25%
Employees at top TM firms produce amazing results
The average profit per employee at top firms is $240,000 versus $16K at bottom performing firms
To produce the same $1 of profit, bottom firms need 15 times more employees
Top-performing firms produce 7X more profit
Source: simmethod.com

22. Having strong HR… increases rev & profit
BCG found that firms that are highly skilled in core HR practices outperform firms with less capable HR. They…
Experience up to 3.5 times the revenue growth
And as much as 2.1 times the profit margins
Source: BCG - From Capability to Profitability: Realizing the Value of People Management, 2012

23. Which TM functions have the highest impact on profit?
A compelling business case requires that you focus your resources on activities that increase profit (BCG)
Which TM functions have the highest impact on profit?
Source: BCG/WFPMA - From Capability to Profitability: Realizing the Value of People Management, 2012

24. Mid and lower impact HR functions
Source: BCG/WFPMA - From Capability to Profitability: Realizing the Value of People Management, 2012

25. BCG found that frequent “best place to work” placement influences stock market returns by 10x
S&P
Made Fortune list 3 out of 10 yrs. (109%) vs. S&P (10%) - BCG 2012

26. There is plenty of external proof
that you should focus on top performers

27. Are top performers worth all of the effort?
"The secret of my success is that we have gone to exceptional lengths to hire the best people in the world… boy, does it pay off."
“The difference between
the average programmer
and a great one”…
it's at least 25 (times)
Steve Jobs

28. Not all employees produce equal output
The 80/20 rule applies to employees
A U of Indiana study (O’Boyle and Aguinis) found...
The top 1% produce 10% of the output
The top 5% produce 26% of the output
Robert Half found that
Poor performers are expensive because their managers spend nearly one day a week dealing with them (17% of their working hours)

29. Business case method # 2 Show that users are satisfied or that you are highly rated
Weakness: Satisfaction may come from low expectations

30. Satisfaction surveys may indicate results
Having satisfied users may be enough
If a survey shows that the users of a program or process are highly satisfied, executives may accept that as proof that the program is producing results

31. Example - Of a business case based on satisfaction
Manager satisfaction with the quality of hire
Last year’s satisfaction percentage 78%
This year’s satisfaction rate 88%
Value added (for each % point of improvement) $100k
Historically the best ever within the firm 78%
The industry average %

32. Another example
Forced ranked assessment of the impact of OH functions on a surveyed manager’s business results
Recruiting
Finance
Supply chain
Retention
Advertising
Market research
Product branding
Security IT
Performance appraisal

33. Business case method # 3 Show the unintended “other pocket losses” that result from excessive cost cutting
Weakness: It does not help to justify budget increases

34. Demonstrate the damage that cost-cutting can do
Demonstrating “other pocket” losses may keep your budget from being cut
Work with the CFO to calculate the “unintended consequences” that will result from cutting TM budgets
Show when “out-of-pocket losses” may overcome any “perceived savings” from reduced TM spending

35. An “other pocket” costs example
Pocket #1 – Froze safety hiring (Saved $10,000)
But look at “other pocket” costs…
Pocket #2 – Accident rates doubled (+$400,000)
Pocket #3 – Insurance rates up 23% (+$187,000)
P. #4 – Turnover of safety ee’s +15% (+$89,000)
Other pocket costs = $676,000 >

36. Example - “Other pocket sourcing costs”
We used the “cheapest source of hire” to select 5 new salespeople (We saved $7,500 in hiring costs)
But the 5 salespeople that we hired sold on average $60,000 less during their 1st year than the hires from the more expensive source!
$7,500 savings - $300,000 in lost sales = $292,500

37. Business case method # 4 Use charts and graphs as an alternative
Weakness: Some demand a deep dive into data

38. Sometimes a chart is all that is needed to convince!
% of sales target met
Performance
after training
Performance
before training

39. Example - Turnover rate change after implementing personal retention plans
Hockey stick approach
Steady turnover of 9 %
What happened here?
Personal retention plans were implemented
Time
October 2013

40. Sometimes a simple comparison table can be a
powerful way to demonstrate performance
Using the #1 most important overall talent metric… Workforce productivity

41. Demonstrating your workforce productivity using a comparison chart
Comparing employee productivity (rev. per employee)
Average $208,000
IBM $221,100 (22% above the average)
HP $348,300 (66% above the average)
Amazon $756,200 (3.5 times the average)
Microsoft $808,600 (4 times the average)
Google $1,014,600 (5 times the average)
Facebook $1,325,000 (6 times the average)
Apple $2,327,000 (11 times the average)
Key learning - It takes 5 X more employees at IBM… to produce the same revenue as Facebook
(Calculated using 7/2013 data from )

42. Business case method # 5 Show statistical correlations
Weakness: Correlations can’t prove cause and effect

43. Some CFO’s will accept correlations
Training correlates with performance – when the average training hours of the team exceeds 60 hours per year… the odds of them exceeding their performance goals increase to 92% (from 70%)
Leader development and performance – when a team leader completes the leadership development course, during the next year, the performance of their team increases by an average of 31%
Diversity and performance – there is a .76 (Max 1.0) correlation between the diversity % in customer service and design teams… and a 10% improvement in product/service quality

44. Business case method # 6 Get the CFO to help you to convert your standard HR metrics to show… their dollar impact on business results
Weakness: The wrong HR metrics may be presented

45. Let the CFO count
Because of the CFOs superior credibility
Let them convert standard HR metrics into their dollar impact on revenue

46. Example - Quantify the $ impact of vacant positions
This Midwest bank was losing revenue every day that a loan officer position was vacant ($5,000 per day). Obviously, with no loan officer, a branch can't make or close any revenue generating loans
They asked recruiting to apply their speed hiring techniques and they cut the number of vacancy days nearly in half (from 60 to 30)
At $5,000 per eliminated vacancy day (x 30) and over dozens of requisitions, they increased the bank’s revenue by millions

47. Conclusion – Perf. management has a low ROI
Example - Let the CFO calculate the… $ impact of performance management
The firm went back 2 years and identified that they had 1,019 people rated #3, “needs improvement”
They calculated that they spent an average of $13,090 per year… on improving their performance (training, coaching, counseling and manager time)
They identified 2 years later… the number that had improved to #1’s
That number was
Conclusion – Perf. management has a low ROI
Cisco

48. What is the performance differential between an innovator and an average employee?
One top-notch engineer is worth “300 times or more… than the average” … “we would rather lose an entire incoming class of engineering graduates than one exceptional technologist.”
Alan Eustace
Senior Vice President, Engineering and Research

49. Let the CFO calculate the ROI of top performers
Why Google focuses on recruiting purple squirrels
The average employee generates $1 million in revenue each year
If you hire a single game changer and that game changer produces the expected 300 times the average
For every one you hire… you add over $299 million in added revenue every year
And if the new hire stays for only 3.5 years… they will generate over $1 billion in revenue
The cost per hire is $12,400 and top performers get paid only 27% more

50. Business case method # 7 Side-by-side comparison of two program variations (aka A/B tests)
Weakness: Expensive to run two programs at once

51. Cost per hire + $919 per hire 0% Offer Accept Rate + 14.5% +1%
Using a side by side example – comparing Job boards and employee referrals
Bus impacts Referrals Sales % of improvement Impact
over job boards
Cost per hire $919 per hire %
Offer Accept Rate % %
Voluntary Turn Times %
Termination rate Times %
Perform. increase % %
Total impact on sales %

52. Business case method # 8 Before and after comparisons
Weakness: Other factors may be causing the success

53. Before and after impacts… of turnover
When a retail manager leaves Impact
Their store sales decrease by $1 million
Store cust. satisfaction decreases by 13%
Stores with a well tenured % higher mgmt team (Average is over 7 yrs.) profit

54. Proving talent programs work
Retention before and after childbirth action
Data indicated that the attrition rate for postpartum women was twice that for other employees
In response, Google lengthened maternity leave to five months from three and changed it from partial pay to full pay
Attrition of women decreased by 50 %

55. Proving talent programs work
Before and after action for promoting women
Technical women were not being promoted at the same rate as men
Employees nominate themselves for promotions at Google, but the data revealed that women were less likely to self nominate
So senior women at Google now host workshops to encourage women to nominate themselves
Women are now promoted proportionally to men

56. Business case method # 9 Put it in and take it away
Weakness: This is difficult to do

57. Put it in and take it out comparison
Which job matters most in Quick Service Restaurants?
Store manager
- Counter help
- French fry chef

58. Moving french fry chefs…
Great french fry chef removed and “old” chef returned
Revenue
Bad FF chef is replaced with a top one
$1 mil
$500k
1st quarter
2nd
3rd
4th
Time
Conclusion - The quality of the french fry chef… makes little difference!

59. Moving great store managers… to weak stores
Revenue
Bad manager returned
Bad mgr. replaced with a great one
+ 35%
$1.35 mil
minus 35%
$1 mil
1st quarter 2nd rd th Year 2
Time
A great store manager does make a difference! 59

60. Moving top counter help… to weak stores
+ 25% immediate
Improvement in 2 weeks!
Revenue
Bad counter help replaced with a great team
But… within 1 month,
the great counter team quit (because of a bad manager). Revenue returned to the base level
$1.35 mil
$1 mil
and the long term impact was 0
1st quarter 2nd rd th Year 2
Time
Great counter help requires a great manager! 60

61. Business case method # 10 Show split sample control group results
Weakness: This is difficult to do

62. Helping a manager increase sales
A manager is complaining about declining sales revenue from “call center” phone sales reps. for a mobile phone company
The manager requested that HR try skill training, then perf. management & finally incentives. All programs had no measurable impact on sales
HR proposed that the problem was hiring reps. with the wrong capabilities. They proposed improving the candidate assessment process by supplementing the standard interview with an on-line capability assessment test

63. Can better hiring increase sales
HR proposed a split sample where half of the next round of hires were assessed the standard way…
while the other half of the candidates were also screened with an additional (vendor supplied) on-line assessment tool designed to weed out people without the right competencies
The manager was so happy with the “scientific approach” that she agreed to fund the $50k costs
Sales from the on-line assesses candidates were over $800,000 higher than the control group the first month and… over $12 million the first year

64. Graph depiction - how a split sample can prove that best practice sharing increases sales
Monthly sales
$1.5 mil
$1.4 mil
$1.3 mil
$1.2 mil
$1.0 mil
Best practice sharing started
Sales up
+ 22.4% after 1 yr.
of best practice sharing
Control group
.02% change in sales in control group
2nd Quarter
3rd Quarter
4th Quarter
1st Quarter
Conclusion – best practice sharing increases revenue by $250,000 per year, at a cost of $50,000, with an ROI of 4 to 1 64 64

65. Business case method # 11 Predictive analytics warn you of upcoming major problems
Weakness: It requires big data

66. Predictive metrics alert you of upcoming problems
Alert: Retirements will triple by 2016
at a cost of $12 mil. in lost productivity

67. Are there any final questions?
Did I make you think?
Are there any final questions?