Perhaps it is because human resources people are focused on administering programs and providing services that they tend to stop before they reach business value.
When we try to evaluate or analyze our work, we often quit at the intermediate results rather than pushing through to the end point found in the marketplace. As a result, line managers nod their heads at our HR services but don’t consider them important because we have not delivered the payoff.
Benchmarking, return on investment evaluation and analytics all take time and resources. They all have the potential to add value, but unless we can link the result to a business improvement they are little more than a sunk cost. Fundamentally, business operations cover quality, innovation, productivity or service. I call them QIPS, and they are not final objectives. They are penultimate stops on the way to profitability.
When we offer an HR service — be it recruiting, training, retention management, compensation or any other — each has its valuation points. We need to first benchmark — compare our HR services and outcomes to other companies — to see where we stand. Even if we are the best, this is not proof that our efforts are affecting the end goal. In fact, it is not even proof that our corporate QIPS are better than the competition. It is simply a comparative score. It may show that our turnover compares favorably with the benchmark, or that our leadership competencies are better or worse. But that is all it is. It is not a leading indicator.
Next is ROI evaluation. ROI is an after-the-fact exercise attempting to show how something has changed as a result of an HR intervention. We can show that there was or was not a significant change in the outcome from our service. ROI is most often used on training. Training can be measured at several levels, from trainee satisfaction through learning to application on the job, and finally effects on QIPS. In some cases ROI has been pushed all the way to increases in sales, leading hopefully to improved profitability. But it does raise questions, such as, why did sales increase? What happened to margins? What about cost of sales? Even if ROI shows an increase in customer satisfaction, that is still a step away from financial impact — our ultimate goal.
Analytics are divided into three sections. Descriptive tells what happened in the past. This is where benchmarking and ROI evaluation fit. The news from the past quarter may be good, but it doesn’t forecast positive change for the future. Predictive analytics suggests what can happen given future investment decisions. We may be able to demonstrate that there is a high improvement probability as a result of investing in a program to reduce turnover or increase engagement. Prescriptive analytics tells us what and how we should do something to realize those values.
The problem I suggested from the start is that we quit before we reach the goal — the so-called payoff. Let me give you two examples from fields familiar to all of us.
Suppose you plan a great Thanksgiving dinner. You work out your menu, purchase the ingredients, prepare the food and walk into the dining room empty handed. Your guests can smell the savory aromas emanating from the kitchen. It might even make them salivate, but until you bring the food to the table for them to appreciate, all you have done is tantalize them.
A second example would be expanding a house. Again, you develop a plan, bring all the materials to the site, erect the structure and finish painting and landscaping, but if you don’t turn on the electricity and the plumbing, all you can do is admire your creativity and skill. No one will reap the benefits of living in the house.
There are countless examples of stopping short, and seldom is there a good reason for it. Why go all the way to the executive suite and fail to open the door? Predictive analytics is the key to the door and a seat at the table.