There is no shortage of challenges facing finance leaders. Over the last several months, we've been focusing on some of the challenges at the intersection of finance and talent. In this column, we'll consider the role of analytics to better manage the finance workforce, and the role finance leaders can play in building analytics capabilities and an analytics-driven culture companywide.
Business analytics -- using models that integrate external (such as macro-economic, industry or sector) data with internal (financial and HR) data and business metrics to better understand and, fingers crossed, predict the likelihood of future behavior and events -- is clearly one of the critical frontiers for forward-looking organizations. Let's put this in context: just as 20 years ago companies were figuring out how to become process-driven organizations and 10 years ago how to become web-based organizations, now leading-edge companies are exploring and adopting the use of analytics to address a range of business challenges, including those posed by their workforce.
Senior executives are operating somewhat blindly when it comes to one of the largest corporate expense items: the workforce and the many related corporate resources that support it. In many companies, in addition to being the largest expense, the workforce accounts for the largest users of real estate, information technology, and other corporate resources. On average, 55 percent of most companies' operating expenses go toward meeting compensation, benefits, and other employee-related expenses. Yet beyond basic cost figures and employee demographics, senior executives generally have little or no insight into how these expenses and resources relate to performance.
Analytics are becoming critical in making more effective decisions across the employee lifecycle from workforce planning and recruitment, to compensation, development programs, and deploying and promoting critical talent. Workforce analytics programs can help companies better understand the supply and demand for talent, and focus limited resources on critical talent decisions. For example, statistical models have demonstrated the ability to project workforce demand six, nine, even 18 months into the future, and forecast employee success and tenure -- even predict the likelihood that a particular employee will leave in the next six months with likely reasons for the prediction.
When adopting a workforce analytics approach (and leading the building of broader analytics efforts) it is useful to strike a balance between focusing analytics on specific workforce (and business) problems -- sometimes called analytics point solutions -- and developing the finance function's and the organization's analytics capability. Point solutions focus on particular challenges, such as recruiting, retention, and workforce health and safety. Capability development focuses on the department's or organization's preparedness, understanding, processes, expectations, and culture relative to analytics thinking, tools, and approaches.
Simply having IT purchase the latest data mining software won't make an organization more analytics focused and savvy. Adopting this approach requires new ways of thinking, new tools, and new roles and processes around managing through analytics. The challenge is to start on a path that combines both a point solutions and capability approach, and be prepared for a journey you can sustain and scale.
The starting point for implementing a workforce analytics approach should reflect the specific critical areas where the use of analytics can help make better and more insightful decisions. Here are eight possible entry points for developing a finance function -- or other company department -- workforce analytics program:
- Workforce planning: What types of talent do you need across the finance function — and where are demographic shifts creating gaps in your supply-demand forecast?
- Recruiting: As you focus on near-term needs and future generations, what are your most effective strategies for attracting critical talent? Can you pinpoint which programs work for specific target groups?
- Retention risk: Which categories of employees and which employees specifically are ﬂight risks? Why?
- Organizational design: What structures can help you manage growth in the current environment?
- Leadership development: Who will replace your current leaders and when? What is their probability of success?
- Workforce safety: How can you anticipate workplace accidents before they occur to improve compliance and productivity, and lower costs?
- Workforce transitions: How can you make more effective workforce deployment decisions related to impacts on the company resulting from mergers, acquisitions, realignments, market opportunities, and competitive threats?
- Health and productivity: How can you more effectively correlate investments in health and wellness benefits with productivity?
With so many major issues competing for the time and attention of finance leaders, perhaps the most important step in implementing a workforce analytics program is getting started. In most cases, the data required already exists somewhere within the organization -- it just needs to be located and then combined in useful ways. Here's how you might get started.
- Visualize a ﬁve-phase journey: View the development of a workforce analytics program as a multiphase transformation.
- Start with real business problems: Begin with an assessment of current challenges, moving from basic reporting to advanced. Tying the effort to top business challenges makes it real and promotes greater acceptance and adoption of workforce analytics.
- Focus on building capabilities: Don't underestimate the magnitude of the shift to an analytics mindset. Moving from a reporting culture (ﬁling reports) to an analytics culture (creating and using actionable data) requires precisely deﬁned analytic goals and concrete examples of potential beneﬁts that help users visualize the "art of the possible." Building a sustainable and scalable analytics capability may not happen quickly. Keep in mind that you're moving to an operating environment where you'll use predictive modeling to make more effective workforce decisions.
Whether introducing analytics to address workforce, customer, or pricing challenges, it is critical to start with an approach combining both analytics point solutions and capability development. Given its pivotal role in improving the company's financial strength and performance, and its integrative role across the business, the finance function is well positioned to lead the company into the new analytics frontier. Finance leaders -- familiar with and adept at analyzing and using data and complex algorithms -- can model the use of analytics, starting with their workforce challenges, for their colleagues across the company.
In an era of uncertainty, competing interests, increasing regulation, and sideways markets, business and finance leaders should endeavor to use every tool available to make the best possible decisions. Finance leaders should check where they are on the road to building their analytics capabilities and using data, information, and advanced analytics, not just retrospectively, but prospectively to solve critical workforce and business problems as well. Where are you on the journey to building an analytics-driven company?
Jeff Schwartz is a principal with Deloitte Consulting LLP's Human Capital practice. He is a regular contributor to Business Finance, sharing his perspective on executive talent development, where the next generation of finance leaders will come from and some of the best practices organizations are applying in addressing these issues.