“What we have here is a failure to communicate.” Paul Newman made a movie in 1967 called Cool Hand Luke. Paul Newman is in prison and is being punished by the warden. There seems to be a communication breakdown between them. That’s when the warden coins that phrase to describe the bitterness between them.
How many times have you thought that parties could not communicate?
Jeff Higgins recently wrote in article in SHRM magazine that describes the communications conflict that occurs frequently between C-Suite executives and Human Resources Management.
He is CEO of the Human Capital Management Institute in Marina Del Rey, Calif., which helps companies transform data into intelligence via workforce planning and predictive analytics. He can be reached at firstname.lastname@example.org.
Below is a summary of what we believe to be pertinent paragraphs from the article. Go here to read the article in its entirety.
Finance believes HR must be able to speak the language of business, which is numbers and, more specifically, business and financial results.
Why must HR learn to speak this language of business numbers (i.e. money/cost/ROI)?
If the overwhelming majority of management teams across the business world, including those at nonprofits and in the public sector, all speak the financial language of business, then is it the 95 percent in most organizations that should stop and learn the language of HR? Or is it the 5 percent in HR who need to learn the language of finance?
If HR and finance professionals speak different languages, how do we bring them together?
Perhaps the best argument for HR to adopt and use human capital metrics is that it puts numbers to people so that CFOs and the rest of the organization can finally begin to understand. HR can change the game to drive superior decisions about people and talent by using facts and numbers woven into the story that HR is uniquely qualified to tell.
Keeping in tune with advice in his article, he summarizes a true story about how HR was able to convince the CEO of a midsize financial services firm that his philosophy toward promoting from within was at odds with enabling the firm to grow.
The CEO had grown increasingly frustrated with the inability of HR to clearly answer questions about the company’s frequent promotions and accompanying salary increases. Among the CEO’s concerns: “Why on Friday is an employee worth one amount and on Monday after a promotion is suddenly worth 20 percent more? How do we know if we are promoting too fast?”
The CEO felt that workforce costs were rising at an unsustainable rate, and formed a committee of HR leaders and C-suite executives to review promotions. At this meeting, senior executives were to present every promotion recommendation from their group for CEO approval. In addition, newly promoted employees were not to be paid their promotional increase until after receiving a 90-day performance review rating of “good.” Then the promotion would be final and the employee would receive the new salary, backdated to the promotion date.
The new committee had the desired effect, and the number of promotions dramatically declined.
But reducing the number and cost of promotions had an unintended consequence—a skyrocketing voluntary turnover rate of high-performing employees, many of whom were doing bigger jobs than their titles suggested but were suffering due to leadership’s fear of submitting them for promotion.
HR conducted a detailed analysis of promotions over the previous two years. Historically, two-thirds of open positions had been filled by external hires, and now nearly 90 percent of positions were being filled from the outside—what HR called “replacement hires.”
What HR found, and now had the data to prove, was that the cost of all promotions before the new policy was 1 percent of total workforce costs, while the cost of replacement hires was, on average, 30 percent to 35 percent more than the departed employees they replaced. The replacement hires were increasing workforce costs far more than the promotions that the CEO had successfully stifled.
Upon presenting this analysis to the CEO, the CEO agreed that “where it makes sense, we should promote more often.”
The first step is simply to ask the right questions about talent and the workforce. Many of these questions are already being asked in organizations, but often not by HR.
For example, questions that many CEOs ask include the following:
- How do we know we have the right size and cost of workforce?
- What is our workforce productivity, and is it improving?
- Are we hiring, promoting and retaining the best talent?
The second step starts with the uniquely powerful metrics that HR has at its disposal. Harnessing this data from HR systems and then analyzing and reporting on it via metrics will allow HR to begin to speak this new language.
The third step is to put data analysis into charts that enable management to gain actionable insights into talent management issues.
In step four, HR harnesses all of steps one, two and three to do what it is already very good at—telling a story.
The fifth and last step is to create a final cost-benefit ROI or value creation metric that speaks squarely to finance and line management executives.