How HR and People Analytics Can Do It Right?
We live in unprecedented times. I know that all generations could say that, but I think this what differentiates us from our predecessors is the speed of changes that affect our surroundings. Computers, e-mails, Internet, mobile phones, smartphones, data, cloud, hybrid-work, they all have revolutionized workplaces. Perhaps, generative AI will be the next revolution. And it all happened within last 30 years.
The world instability is disturbing as it always was in human history. Global warming, pandemic, Russia aggression in Ukraine, inflation, big tech layoffs, unstable economies are just a tip of an iceberg. We live in this environment, and we keep doing business. As modern HR functions we have to support our business the best possible way which also means adoption of modern technology and learning competences of the future to keep on with changing paradigm of work. I believe people analytics and digital HR will play a huge role in development of self-conscious modern companies.
This issue of my newsletter is different than previous issues. Instead of showcasing and curating interesting news and knowledge from the people analytics and digital HR fields, I wrote an essay-like article.
Let me know if you like that new format!
The Twitter Case and Big Tech Layoffs
After Elon Musk bought the company, Twitter has shed about 80% of its employees. Twitter headcount is hovering around 1,400 working employees today, whereas before Musk it was approximately 7,500 employees. (LINK)
Of course, with such big reductions a lot of knowledge and skills where inevitably lost. The company workforce is disrupted, and immediate continuity of their operations, technology maintenance and enhancement are at risk. At least in theory.
Initially, when I’ve heard about these reductions, I thought this is another whim of a billionaire who is well known of the controversial opinions and behavior. But later, I started to calculate. I compared Twitter to a big multinational company operating in the automotive market. That company has around 100,000 employees, production sites in 19 countries and it operates in almost 60 countries. It’s offering wide range of vehicles, specialized equipment, and services. It has R&D department working on electromobility, hydrogen vehicles, autonomous vehicles, and connectivity. It serves its customers withs such services as preventive maintenance recommendations, and much more. Twitter, to compare, has a timeline, a website, an Android app, and an iOS app. It isn’t much, is it?
So why does Twitter, which is offering that little compared to the automotive company from the example, had 7,4% of its total workforce?
To be frank, I don’t know. I assume, though, that the bet Mr. Musk did when reducing the headcount was well reasoned.
There is something happening regarding IT jobs and tech companies. Currently, this is the trend in layoffs with Microsoft eliminating 10,000 jobs (5% of their workforce), Meta 11,000 (13%), Amazon 18,000 (1.2%), Salesforce 8,000 (10%), Alphabet 12,000 (6%), Snap 1200 (20%), and many more. (LINK)
Let’s try to identify the root cause of this situation. What is the issue with the workforce of the digital age? People, knowledge, and information became companies top assets. What are the top 5 largest companies by market cap? Apple, Saudi Aramco, Microsoft, Alphabet (Google), and Amazon. Tech, oil, tech, tech, and tech. Tech companies aren’t that successful because they own traditional assets. They own intellectual property, and they have skilled people who can leverage on it. That creates new challenges.
HR data and people analytics will help navigate among the imponderabilia of tech work organization. How to measure productivity of people working on intangible tasks? How to identify what is in value-chain, what is a waste, and what is simply an overprocessing?
Over-processing refers to doing more work, adding more components, or having more steps in a product or service than what is required by the customer.
Where is the optimal collaboration and communication that doesn’t result in overlapping responsibilities, political tensions, and communication inefficiencies?
We’ll measure it. But first, we must start with basics.
Employee net value
Employee net value is the value the employee is generating for the company minus the employee cost. But how to calculate the employee value first?
We can say, following HR leaders, that employees value is their performance, or productivity. In fact, it might be manageable to calculate performance of salesmen as the output of their effort would be represented in a possible to interpret sales figure. However, how to represent performance of a Software Engineer, or a Talent Acquisition Specialist, or an IT Chapter Manager, or a Scrum Master? In business performance, the only objective metrics are revenue and income. The rest is subjective, and so is the workforce performance. Even the employee cost is not that straight forward, but we can simplify it and take the payroll as the ultimate metric.
The thing is, that as long as we would not have metrics to interpret our organizations' or individual contributors' performance, we will be forced to make error-prone decisions on the HEADCOUNT level. Reduce 10% headcount. Reduce 8% headcount. Compare headcount size. With this knowledge, we will know how we will affect payroll, hence the employee cost in the following period. But is it sufficient guidance for leaders in the digital age?
Would You Like to Know How Your Workforce Is Affecting Your Business Outcomes?
Before we will be able to respond to that question with the satisfying precision some time will have to pass. People analytics is not ready yet to give a clear answer regarding workforce and individual contributors performance. Yet, it can deliver a lot of value in terms of revealing organization real health and supporting informed people decisions.
First of all, we live in the digital age. The traditional HR and workforce models are aimed at bricks-and-mortar companies (and their times). They are still relevant, but in my opinion they both require enhancement. For example, the appreciated original HRBP model from Dave Ulrich is from 1997!
In the digital age it’s people, intellectual property, patents, technology, data, customers; that are the key value for a company. To get ROI of these intangible resources we need to develop strategic capabilities such as innovation, productivity, customer growth, and customer experience. If executed well, these capabilities will generate profits for the company.
Since we’re no longer in bricks-and-mortar world, we cannot refer to headcount as the ultimate productivity factor. For example, enablement of generative AI like Chat GPT-3 creates completely new paradigm for the workplace.
I’m old enough to remember how it was to travel by car through Europe with only a paper map on the passenger lap. The preparation for the trip like that required some time. I had to identify optimal roads, familiarize myself with the cities on the way that I would later use as my navigation checkpoints, make notes, and got used to the fact that I will lose my way at least once so I will have to improvise.
True story. Once, I lost my way going back home from Croatia and asked my future wife if she was sure that we were going in the right way. She said, she was sure. Which road we were driving, I asked. This blue one, she pointed to the river on the map.
For many years now, we’re equipped with car navigation. We have Google and Apple maps in our phones. We don’t even think any more about learning the way to the destination. We set it in the app, and we drive. This is changed paradigm.
Generative AI will do the same. It will not automate the work the way we used to think of automation. It will change the paradigm.
Imagine a Business Analyst who is collecting requirements from the user, who is learning about the problem, documenting it, translating to a solution, then handing over the knowledge and documentation to a Software Developer, who will work on prototyping a solution. Now, think that we take the developer out of the equation. Business Analyst still does the job, but instead of handing over the work to the developer, BA writes prompts to generative AI that generates working code of the solution prototype. Two hours later BA comes back to the user and demo the solution to collect immediate feedback. That’s the new paradigm!
That leads me to a conclusion that we will not manage people encapsulated within boundaries of traditionally defined roles. Moving on, we will manage skills as a component of modern workforce. Or rather I should say: a component of strategic capability that enables profitability growth. Therefore, instead of managing the headcount, which means increasing or reducing the workforce, we should focus on strategic workforce planning and skills management.
The process and the company outcomes
Working in HR function, we have that tendency to disconnect from the business. We have HR processes that powers themselves, like perpetuum-mobile, and HR leaders who treat their support function’s mission as a value itself.
Much closer to my point of view is Max Blumberg’s Business-Driven HR Operating Model.
We develop people processes such as competency management, rewards & recognition, career development, and more. We hone them and polish, we buy modern HRIS and HCM platforms. We survey employees and collect data. We implement top-notch data privacy measurements. But we do this for purpose, and we should always remember what that purpose is.
The purpose is to enable workforce capabilities such as employee engagement, workforce performance, leadership capability, and more.
Workforce capabilities translate to strategic capabilities. They include productivity, quality (I prefer to replace quality with user/customer experience, but for the purpose of this text I keep the original version), innovation, and customers. And these capabilities, eventually, lead to desired business outcomes that include, but are not limited to: ROIC, revenue growth, market capitalization, sustainability, social impact, return to shareholders.
Now, let’s do the reverse engineering and focus on the Twitter issue from the first paragraph. They have one service with:
- 2021 revenue $5bn
- 7,500 employees
- $221mln loss
Huge simplification, but the business problem is the ROIC, key strategic capability to focus is productivity. Workforce capability to keep an eye on is workforce performance. Processes to measure and test hypothesis are for example recruitment, and workforce planning.
Of course, this quick analysis in naïve and it cannot be taken seriously, but it shows the mechanism of how people analytics can help respond to your workforce challenges in the digital age.
What Is People Analytics and how It Helps Executives to Make the Right Decisions?
Let’s come back to the question: would you like to know how your workforce is affecting your business outcomes?
The mission of people analytics is to research the company’s business problem, generate hypotheses, collect (and generate!) people data, analyze hypotheses, and implement insights. In other words: enable informed people decisions and reveal insights to improve business outcomes.
In HR we have plenty of data. When we extract the data from the HR system and we share the data with stakeholders this is HR reporting. When we analyse the data and share insights, or when we share scalable analytics solutions with the stakeholders who analyse data by themselves this is analytics.
People analytics is great when we track HR metrics, when we democratize HR data, when we share dashboards with leaders who can track trends and key parameters of their teams and organizations. Every leader should know what is their employee retention trend, who is at risk of burndown, what are people interactions and what are their relations in the organizational structure. It’s important to visualize all of that. HR data democratization, visualization, and data literacy among HR professionals is valuable. However, it’s hard to praise HR for just doing their work right in 2023. Data is everywhere. Data is the new gold. Don’t show only gimmicks to your C-level if you want to be treated seriously.
Instead, become business-driven people analytics function. Translate business problems into hypotheses, test your hypotheses with HR and non-HR data, provide insights and implement them. Only then you will be the serious people analytics function that researches on real business problems and improve business outcomes directly.
Then, one day you will be able to show how your individual contributors are affecting your business outcome and you will be able measure it.
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