The acknowledged father of human capital strategic analysis, and Founder and CEO of Human Capital Source, Jac Fitz-enz, was kind enough to take the time to answer a few questions about his groundbreaking and visionary book The New HR Analytics: Predicting the Economic Value of Your Company's Human Capital Investments.
Jac Fitz-enz demonstrates, through a series of essays, written by leading human resource experts including himself, that Human Resources is not a cost to a company, but a measurable, and predictable contributor to overall corporate productivity and profitability.
Thanks to Jac Fitz-enz for his time but for his comprehensive answers.
What was the background to writing this book The New HR Analytics: Predicting the Economic Value of Your Company's Human Capital Investments?
Jac Fitz-Enz: It became clear in about 2007 that I had pushed metrics, benchmarking and best practices about as far as they could go. There was nothing new coming out. Then it struck me that the natural evolution would be toward predictability and eventually data integration. That is when I organized the Predictive Initiative composed of a dozen companies, management associations and a government agency. Over the next 18 months we developed Predictive Management, HCM:21®(human capital management for the 21st century). This is the model described in my book.
For many years, Human Resources has been viewed by corporate management as a cost center. Why has this point of view been so entrenched in companies?
Jac Fitz-Enz: I believe that ancient perception is finally dying out in many companies. There were a couple sources for this misperception. One is that HR was missing a quantitative language to describe the business values it was providing. That is what started me on the metrics and analytics trail back in the late 1970s. The second source is the HR people who have no aptitude nor interest in being a business professional. They like to run their process and work with people; period! For them the future is an endless conveyor belt on incoming problems with little satisfaction at the end of the day.
Has there been a move toward a much more quantitative analysis of the role of Human Resources in an organization?
Jac Fitz-Enz: I parse the HR population into four sections: One are the innovators. These people are on the leading edge of analytics and clearly are business partners. They make up about 10-15 percent. Second are the early adopters. They are another 20-30 percent who watch the innovators, follow and borrow what works from them. They are less skilled and motivated but, nevertheless are moving in the right direction. The third group is what I call the workers or drones. They show up every day and do their job; what they are told to do by the first and second group. There is no innovation here; just good work. Last are the zombies. They are the 10 percent who are lucky to get to work now and then. They are a drag on the organization and generally on society. Analytics is strictly within the first two groups.
How have the metrics used in HR analytics changed and been enhanced over recent years?
Jac Fitz-Enz: The change has been a progression from basic transaction recording; i.e., cost to hire, pay, train, turnover rate, etc., timeliness of various processing such as time to fill jobs, quantity or volume such as numbers hired, trained, processed. Later issues of quality and employee/manager satisfaction emerged. Within the past 5 years there has been a shift from descriptive analytics toward prescriptive decision making by applying simple processes such as correlations and regressions. Just now, with the advent of books on analytics, there is more movement toward predictability. The next exciting issue is data integration.
Jac Fitz-enz (photo left)
Your book goes far beyond the descriptive analytics field and enters into the realm of predictive management. What does this mean for HR?
Jac Fitz-Enz: Management is all about observing past outcomes and trends and making decisions about future investments. Executives can’t manage yesterday, or even today. All they can do is make decisions about investments for tomorrow. I call it Managing Tomorrow Today. Predictive analytics along with data mining finds patterns in historical and transactional data. Adding in forecasts of trends in economics, labor supply and competitor and customer actions and so forth, analytics then can identify predict future risks & opportunities with a high degree of probability.
When applied to human capital management HR can show the C-level the most cost effective paths to acquiring, developing and retaining talent. Without it all HR has to go on is past personal experience. The problem is that the past cannot be extrapolated to the future because the differences are too great. For instance, how can you take data from 2007 and use it as a model for managing 2011?
The other part that has become increasingly clear and powerful is the interactions between human capital (employees), structural capital (things owned by the company) and relational capital (outside interests). As elements of human capital management change so do structural and relational elements. For instance, if the four generation workforce has to be managed differently than the more homogeneous workforce of the past then we need to look at structural issues such as use of technology, design of workspaces, training tools, benefit programs and so on. Relationally we may have to rethink talent sources and methods, government regulations, and SEC imposed new human capital risk rules. I don’t see any way at all that HR can function effectively tomorrow without predictive analytics.
Is it indeed possible to predict upcoming events and develop the tools to influence those events in a positive way?
Jac Fitz-Enz: Certainly. Management has been doing it in production, marketing and finance for decades. Analytically speaking the same principles can be applied to employees. Marketing makes predictions about customer desires doesn’t it? And aren’t customers human beings just like employees? We’ve shown examples in the book of how to use analytics to make hiring more cost effective in terms of performance, potential and tenure. We’ve shown a succession planning methodology that directing impacts revenue per employee.
There is certainly a way to predict the effects of compensation and benefits within a total rewards system. I’m already getting calls from line managers who want to apply predictive analytics to their human capital managers. Why aren’t they calling their HR department instead of me?
Your book contains a new model of HR metrics. Briefly, what is that model and why is it important?
Jac Fitz-Enz: First, people need to understand that predictive analytics is primarily about a logical questioning system. We need a framework within which to study a problem before we throw statistics at it. Scientists learned eons ago that the solution to every problem is found within the questions asked. Once we understand our problem and desired solution we can gather data and analyze it. So, my model starts with a scan of everything outside that might affect the way we manage our human, structural and relational capital.
Secondly, it looks internally at everything that may be enhancing or inhibiting our success. Once we have all that data, both past and foreseeable futures, we can plan. Here we trade in old workforce planning methods that are industrial era, gap analysis exercises for capability planning. The goal is not to fill jobs but rather to acquire and retain human capability. It is an entirely different mindset.
The third step is process analysis. By applying analytics to our talent management functions of staffing, paying, training, etc. we can find turn expensive processes into corporate assets: processes that generate more value than they cost. Finally, we offer an integrated performance measurement/reporting package. It links strategic, operational and leading indicators into one report. For the most advanced people we build in data integration and risk management analysis.
Is it possible to change the role of Human Resources to becoming a value generator for the company?
Jac Fitz-Enz: Of course it is possible and has already happened in a number of organizations. The solution is found in the old axiom of Pogo Possum who said, “We has found the enemy and they is us.” HR is held back only by HR. It is possible even in companies where HR as a value generator has not been accepted. I did this 35 years ago when I was an HR director. I found business problems that I could fix through better sourcing or training and I fixed them. When management saw that I was adding business value (productivity and quality) their attitudes changed. You can’t wait for the knight in shining armor to rescue you.
Will we see an HR Analytics component as a standard feature contributing to the company bottom line?
Jac Fitz-Enz: I am on the board of a couple of companies. In my quarterly board package is a set of human capital metrics that we directors look at as part of our mandate to guide the company. Just like finance, production and technology we look at human issues as they affect the company’s profitability.
Are there any companies who are using this new HR Analytics model successfully right now?
Jac Fitz-Enz: The book contains about 20 cases of how companies around the world use human capital analytics to solve business problems. They range from isolated single variable issues such as turnover to complex corporate makeover examples.
What is the future for the HR Analytics model?
Jac Fitz-Enz: I believe that the innovators and early adopters will build on the fundamentals of analytics just as they have done with metrics. In time, the model will expand, improve and morph into something better based on experience and changes in the marketplace.
What is next for Jac Fitz-Enz?
Jac Fitz-Enz: Sometimes I feel like Moses. I’ve been leading people toward the Promised Land for over 30 years but will probably not live to see many of them arrive. The vanguard is about to cross over now, but the majority may still be decades away. For me, I am very interested in data integration and risk management. I’m working with two software companies that have very exciting prototypes which we are testing in the market now. By 2011 I expect to see both in the market.
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My book review of The New HR Analytics: Predicting the Economic Value of Your Company's Human Capital Investments by Jac Fitz-enz.
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