Given that author and consultant Jac Fitz-enz is known as the “father of human capital performance benchmarking,” it is only fitting he lead the charge into the next step for strategic HR: “Prediction-making.”
Accurate predictions will help HR determine how the turnover rate will hurt the company three years from now and answer questions such as whether company leadership is strong enough for future success and, if a new business unit is launched tomorrow, how many staff will be needed and what the labour costs will be.
Fitz-enz is working on making it possible for HR professionals to answer these kinds of questions and, ultimately, fulfill their function’s core business competency — to deliver human capital return on investment.
The thought of doing math on the job shouldn’t make HR professionals panic. After all, Fitz-enz failed high school math — twice — and yet his complex HR math formulas deliver results. The former HR professional, who is based in San Jose, Calif., conducted breakthrough research in the 1970s that led to annual benchmarking data for measuring human capital through his former company, the Saratoga Institute. Now he’s working on the “predictive initiative” at his current company, Human Capital Source, with participating companies to develop tools and technology that enable HR performance predictions.
Canadian HR Reporter
spoke to Fitz-enz about measuring performance, a necessary step in prediction-making.
Q: Why is it so important for HR professionals to speak the language of business, as you put it?
A: If you are an HR professional and you go to your boss and say you need $200,000 to invest in the HR department to make things easier, what do you think he will say? Is that a good enough reason, “to make things easier?” Not likely. You need to be able to say, in bottom-line figures, how that money will make the HR department more effective and efficient.
In the 1960s, when I was an HR professional, I discovered we were overpaying benefits. I went to my boss to tell him that the savings would be $300,000 and he said, “That’s great! You just saved three cents a share.” You see how important it is to speak their language? Basically, if you want to be a strategic part of an organization, which speaks mainly in quantitative, fiscal terms, then you have to speak that way too.
Q: So if every other department, such as marketing and IT, speaks the language, why doesn’t HR?
A: A lot of people who go into the HR function aren’t quantitative thinkers. They don’t have finance or engineering backgrounds. They go into it wanting to work with people. And they believe metrics somehow take the “human” aspect out of their job. But they need to understand that attitude may never get them to the strategic table. The only way to get what you want for employees is to speak in terms business people understand.
People are afraid. They are math-phobic and resist the idea of incorporating accounting and finance concepts in the HR functions. Even when they do initiate it, they may still be afraid of not understanding all the terminology, or not being able to answer a question from their managers. But anybody can do it. My degree was in political science. In high school, I flunked math two times.
Q: How do you suggest HR people overcome their ¬intimidation of numbers?
A: Take a basic finance course. Many years ago I took one through the American Management Association, which taught me the same language the rest of the company was speaking… income statements, balance sheets, basic accounting. Now I understand investment, returns and accountability, and I am able to talk in those terms. I can say that a certain investment will get a certain effect on our income statement.
Q: So if anyone can do it, what is the simplest way to explain how to measure human capital performance?
A: There are some things you need outside help with, of course. However, HR people should be thinking strategically at all times. The simplest way to condense it is to come at any strategy in five ways. For example, if you’re looking to hire more employees you need to consider:
• What is the cost of what we are doing? (The cost to hire more people, pay them and train them.)
• How long will it take? (The amount of time to find the right people and design the right training.)
• Can we manage volume? (What we need versus our current resources.)
• What about quality? (At what rate will we accomplish this?)
• What is the satisfaction to the customer? (How will new employees impact the customer?)
Q:Is it really possible to measure the intangibles of HR, such as leadership?
A: Yes. People say concepts like leadership are not measurable because we can’t see them, but it’s not true. We can see human behaviour. So to measure something like leadership, you can survey employees to compile quantifiable data. You can ask them to rate certain leadership capabilities and then determine whether or not you have the leadership capabilities you need for the future.
Lesley Young is a Toronto-based freelance writer.
The basic formula for profit per employee
How much profit does a human generate? Here is the basic formula according to human capital metrics guru Jac Fitz-enz: Revenue minus all expenses (except human expenses which are pay and benefits) divided by full-time equivalents (revenue per full-time employee).
HR professionals stumped by this equation shouldn’t worry. They can brush up on accounting basics by taking a finance course provided by a local association or college or even online.
HR professionals will be surprised at how quickly they can pick up and incorporate “business speak” in everyday HR functions, said Fitz-enz.