Human Capital Management: Turning People Into Assets
1 Mar, 2004
By: David Longworth,Rhion JonesWhile many businesses play little more than lip-service to the principles of Human Capital Management (HCM), a handful of industries long ago started to tackle the basic principles. They may not call it HCM—they may not even recognize it as a management discipline—but they’re committing management resource to tackling key HCM issues, particularly in reducing staff turnover, retaining and developing key employees, and building strong middle management. Along with fast-food retail chains and other sectors with a reputation for high staff turnover, the call center industry is right in the frontline of efforts to build a new kind of relationship with its employees.
One of the biggest problems these sectors face, however, is a lack of information and metrics about their workforce. The HR sector traditionally has focused on administration and legislative compliance—process-based activities that are essential to the way organizations function, but that don’t provide much in the way of strategic insight. HCM, by contrast, is all about treating people as assets—a discipline that focuses on recruiting, retaining, managing, measuring and leveraging key employees. And while many companies equate key employees with senior management, in high-turnover businesses such as the call center sector the phrase describes every individual whose skills and competencies make a significant contribution to driving the business forward.
To measure and maximize these workforce “assets”, call center managers need to get their hands on a broader range of people-related information. Partly because of HR’s historical focus on transactions, the uptake of HCM analytics is relatively low across all industries, particularly if you compare adoption levels to the way that reporting and analytics are deployed in other functions such as finance. However, a wide range of IT tools is now available on the market; some are bundled with HR applications while others are available as specialist packages. As senior management mindset shifts toward retaining and leveraging key employees, adoption levels of reporting and analysis are likely to increase.
These tools are designed to give insight into several different types of HCM issues. Internally, HR needs data to analyze how effectively its own operations are run, particularly in terms of recruitment, training and managing absenteeism. In addition, HR is under growing pressure to provide managers with the tools they need to improve the quality of individual employee measurement, as well as generating meaningful information about key performance indicators such as departmental and companywide attrition rates. Meanwhile, at a more strategic level, a number of applications have emerged to help with workforce modeling and planning, as well as to bring new insight to compensation management and planning.
Each level of analysis will provide important data for call center managers and may ultimately help shift the way employees are valued and measured. Traditional inbound call center metrics, such as call volume and duration, provide only one, cost-based perspective on the value that individual employees bring to the table; there are many other ways to measure their value.
Employee Measurement: Old and New
Employee attrition is a good example of the difference between traditional employee measurement and a broader, HCM perspective. Most organizations track the direct costs associated with employee turnover, particularly in terms of hiring fees. An exhaustive analysis of employee attrition, however, would incorporate a number of other factors, such as:
• Total recruitment costs. Besides the direct expenditure on advertising or agency fees, this factor also includes the cost of allocating HR resources and indirect factors such as the diversion of senior management resources
• Impact on productivity and customer service if vacancies lead to a noticeable decline in a company’s ability to handle call volumes. Even if a defector is quickly replaced, the introduction of a new employee usually leads to a short-term deterioration in productivity as the individual acclimatizes
• Training costs for new employees. These are usually measured in terms of external fees, travel and accommodation, but there are also additional indirect costs incurred through senior management time and peer-level resource spent on on-the-job training
• Lost investment in former employees, particularly in terms of training and development
• Loss of knowledge and experience. Although a good customer service application will track all relevant customer-related information, large amounts of knowledge and the experience required to leverage it will depart with the employee
This kind of analysis may well be too detailed for everyday operational use, but it brings a new perspective to the costs associated with turnover and, by implication, to the return on investment that might be generated by spending on retention initiatives. By measuring retention in this way, managers find a whole new insight into the true costs of losing key personnel—one that may encourage them to take preventative action to head off future losses or to revise compensation policies and other factors that influence attrition levels.
Building an Analytical Framework
Building an analytical framework for such decision making may seem a daunting task, but in reality it can be accomplished with a step-by-step basis, in some cases piggy-backing on other IT initiatives.
Fundamentally, the quality of any analytical exercise—in finance, customer service or even HR—is rooted in the quality of data input, which is a good place to start. In many organizations, much of the information that’s needed to support HCM is hard to access—sometimes it’s stored in stand-alone, legacy systems that haven’t been integrated with other applications; other times it’s on paper or simply kept in managers’ heads. Automating internal employee-related processes provides one answer to that problem.
If, for example, you can capture prospective employees’ resume data when they apply for a position, you have the beginnings of a basic competency and skill capture system that can be used to determine training needs and provide a framework for future performance appraisals. In the past, the arguments in favor of HR automation tended to center on practical benefits such as improved efficiency and lower costs; increasingly, the ability to capture raw data and boost the organization’s analytical prowess in this way will be an additional factor.
Ultimately, data will also need to be captured from sources outside the HR department, and either accessed whenever required from operational systems or stored in a central repository for analysis. Finance systems, for example, provide details of compensation and also contain a vast array of cost data that helps organizations better understand how much they’re spending on specific people-related activities. Most organizations will also look to pull in data from third-party benchmarking organizations to analyze attrition rates and other strategic indicators against industry norms.
Once data has been collated, the analytical opportunities are vast. At a basic process level, traditional HR metrics provide invaluable insight into the effectiveness of HR activity, from headcount assessment—still a major problem for multinational call centers—to turnover analysis. In the recruitment cycle, for example, comparing the rates of retention in different departments or regions can uncover significant disparities and suggest underlying problems in the business.
These kinds of calculations take workforce analysis to a new level, providing far more strategic input to the business. A growing number of vendors now provide software to help with this kind of insight, ranging from specialist business intelligence tools to HCM applications that contain pre-built metrics. In addition, several vendors offer workforce planning applications, which allow HR to assess and model future recruitment and development needs in the context of their broader business planning and financial budgeting. Compensation planning applications also allow organizations to assess overall compensation policies in the context of industry trends and drill-down to specific departmental issues.
In most cases, the best way to launch into this kind of analytical activity is to start with the biggest pain points within the call center, and then focus on using analytics in way that delivers a tangible business result.
HCM may be the defining business philosophy, but pragmatism is what will make the most immediate impact on the bottom line.
