While the world is experiencing a war for talent, each region has its own, unique talent related challenges. Indeed there are local talent management phenomena, as Jason Averbook from Knowledge Infusion and I discussed in his recent blog.

In some European countries a lot of businesses carry a huge cost for people on sick leave. This cost in most European countries is a shared responsibility between each company and some kind of government funded insurance system (most employers must pay this insurance anyway – in many places it is mandatory).

How much of a burden is this for organizations? There are many consequences when employees overuse sick leave:

• Need to carry extra staff to cover for the absence levels
• Cover the absences with temporary staff that is both costly and not always fully productive in wider-scoped roles
• Lose business – which might be the worst of all alternatives since it will hit both the top and bottom line

Let’s look at this example from a financial service company in Holland:

The employer is legally responsible for paying 70% of the normal salary, after 2 sick days for a full 2 years. In a majority of industry sectors, this is legally raised to 100% through deals with unions. Our research indicates that the sick leave in Holland is about 6% (Sweden, Norway and the UK between 4-6%, France 3%, Italy, Ireland & Germany about 1.5%)

For a global financial service company with about 2 Billion Euros of labor cost and 35K employees there is an average cost per employee of 57K Euros. With 6% absent for sick leave that would mean that 2100 employees are absent at a cost of 120M Euro per year. If that sick leave could be reduced to 5% this company would have 350 more people working while directly saving 20M Euro. This example though showing significant cost savings is only looking at the direct cost of this absence, and not at the more strategic impact of lost business opportunities, or the individual human costs. Though there are arguments for fixing systematic problems caused by over generous sick pay, there is really nothing organizations can do about it in the short term… or is there?

To find the answer I turned to one of SuccessFactors Research Thought Leaders Ken Scarlett who has been researching this, and the conversation left us with some very real solutions.

Aggregately speaking, the higher the Engagement level (as measured by an engagement index) the lower the sick leave rates, and there is no better way to predict the likelihood of abusing sick leave than by the responses to the questions “Do you look forward to coming to work?” and/or “Do you feel you work is important to others?” Ken’s research shows that the group who answered negatively to those questions has the highest propensity to max out/abuse sick leave. With the specific questions above, you can actually create a highly accurate forecast within 10% margin of error.

In any country and any industry your job as a leader is to increase the likelihood that your people answer the question “Do you look forward to coming to work?” positively.

Why is that? Per definition that would imply that the person on the bench has more potential and capacity than what is currently being used right now. Well how many star players are happy sitting on the bench waiting for their turn to play? Building it only works if done right and that is to look deeply and widely at your workforce potential and employee preferences, and then act on that information. Act means putting people to use and managing to their potential. The worst thing you can do is to ignore untapped potential, thus de-motivating and potentially losing your strongest people. Such a loss will be seen on the profit and loss statement, in addition to being a human loss for individuals. Studying the financials of our customers we see that those customers that are using our Succession Management module operate with 7.9%pt (absolute) higher net profit margin than those that don’t…

In his upcoming book, Talent on Demand, our research partner Peter Cappelli discusses the need for looking at talent as an input parameter for production, and uniquely applies the same model that is used for the supply chain. You don’t want to build costly excess inventory anywhere in the physical supply chain but, is it acceptable on the most costly asset – people?

Peter will join us at our upcoming customer conference in June to discuss this approach of managing talent along with other SF Research thought leader partners as well as our customers.

Sometime during the movement from an agricultural economy to an industrial economy I think we have collectively mixed this concept up, and so it merits the question today. Work used to be about what you could produce. When we moved into offices and cubicles, and started shuffling information back and forth that concept was lost. We started to refer to work as somewhere you go, and this changed how work was measured; workers were paid and rewarded for time and not always results.

Work is what you do – not just a place where you go. In a recent article published in the Harvard Business review, Tamara J. Erickson discusses this very issue in terms of what Gen Y’ers expect from work. In essence the task and not time is what matters to them.

I hope that this concept is not only for Gen Y but for everyone in the workforce, irrespective of age. According to recent research from our thought leader partners Jim Ware and Charlie Grantham at the Future of Work, people today divide their working time almost equally between the office, home or somewhere in between. I am, for instance, writing this blog on a plane to Europe to speak at a strategic talent management conference in Stockholm – well I guess that is work though I’m not technically in the office.

This is of course pretty straightforward as a concept but nonetheless difficult to change in some organizations. The solution, may I suggest, comes from a managerial change in attitude and behavior. If we get away from the face time and office hour concept and instead focus on the expected results and goals that need to be achieved, productivity will improve. People naturally want to do great work and be rewarded for the results. It also allows people to focus on managing their energy, in addition to managing their time. Maybe you are more productive, alert and energized at 8pm after a long run on the treadmill at the gym than you are at 10am in the morning. Why not get some work done then? If your employer measures your contribution, not your time on the clock, go for it! It maximizes your productivity, benefiting you and your employer.

Maybe we could learn from the US Marine Corps and their usage of mission based orders. An order is given with the goal that needs to be accomplished, along with an explanation as to why that goal is important. It is then up to the officer in charge and closest to the action to deal with how to get it done and to do it. That is goal orientation instead of time orientation. So focus on output and results instead of time. Semper Fi!

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70% of total cost of doing business is people cost

80% of the value of a company is not found on the balance sheet

Why are people only an expense post on the income statement?

Today: Profitable companies see their people as a necessary cost of doing business.

Tomorrow: The economy goes in cycles and the cost of doing business quickly becomes a big problem when companies face problems continue to grow or even maintaining the top line. So people go from being a cost to becoming a problem. I thought this is an important reminder right now with some indications of the US and world economy moving into slower growth and potentially a recession. Are your people becoming a problem that you will deal with?

Talkers: Some organizations talk about their people as their greatest asset but what they typically mean is that they actually understand that people also belong on the balance sheet and refer to people as means of production. That is a great industrial factory floor viewpoint of people. They are a means of production as is raw materials and capital. However they don’t need to write of this asset. It is also a pretty stale view assuming a constant value of this asset.

Walkers: Modern organizations should see their people not only as a cost but also as a capital investment. There is however a fundamental difference between a dead asset and a person. An asset will depreciate over time. Of course to various degrees depending on what it is and how it is being used and maintained. A person’s value will increase over time in terms of the ability to deliver value to customers. This additional value contribution potential springs from experience, network, knowledge, skills and courage. The more this type of asset is being used the more it appreciates (of course within human capacity). Ongoing growth and learning should make an individual more capable of dealing with broader and more complex issues at a faster pace. Nothing new here and I think that this viewpoint is greatly illustrated by Larry Bossidy while explaining the turnaround of AlliedSignal (The Job No CEO Should Delegate, Bossidy, HBR, 2001). However if companies only pay lip service to this they are selling them self short in terms of limiting growth, harvesting productivity gains and ultimately creating shareholder return. Growing the greatest asset will grow the company and set it part from competitors.

Dr Kirk Hallowell from PDI and I are working on a more in depth paper looking into the right metrics to measure and and manage people as assets. We will present our findings in a webinar end of January. Our goal is to show how greater people practices pays of financially and introduce some specific metrics that we suggest organizations start using to achieve real results.

Erik’s note: We’re happy to present another guest post by Chris Lozaga a Research Analyst in SuccessFactors Global Research team

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The holiday season has different implications for everyone – the sales team is busy trying to close those year-end deals, managers are juggling their priorities around the vacation many workers take this time of year, and the good old folks in HR are preparing for performance review season. The happiest time of the year – or not, depending upon whether or not like Santa Claus, you have kept a careful list of who has been naughty and who has been nice all year long. For those companies who have invested in performance management, review season isn’t so bad.But what about when it is time to hand out gifts? Pay for performance has been proven over and over again to be on average one of the most effective drivers of real results for companies that have implemented it. Many companies have very loose pay for performance systems, a bit like Christmas, where all the kids get something. While that makes for a nice holiday, it can be very bad company policy. SuccessFactors Research decided to look into the matter, using our own customers as a point of reference. How do companies that only use Performance Management compare to those who use Performance Management and Compensation Management?
The results speak for themselves. SuccessFactors Customers who use Performance Management grew profits on average 36 % last year, beating their industry peers by an average of 20 percentage points. However, SuccessFactors Customers who use Performance and Compensation management grew profits on average 46%, beating their peers by an average of 30 percentage points! In this case, it’s Christmas for the investors as well. The bottom line – if you are implementing a great performance management system, you are not realizing the total potential gain unless compensation is closely integrated into the process.In this study we included all publicly traded companies with at least 500 employees that have been using SuccessFactors for at least 3 full quarters and use either the PM or PM and Compensation module.
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Erik’s note: We’re happy to present this guest post by Chris Lozaga a Research Analyst in SuccessFactors Global Research team

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Typically, we reserve the phrase “too much information” for our coworkers and friends who share just a few too many details with us by the water cooler, but in the world of HR, “too much information” is taking on a whole new meaning. As companies move from paper-based systems to electronic systems, they are inundated with information. Through software, businesses have the ability to measure everything, rather than just a few things tracked on paper and aggregated by hand for analysis. HR professionals can literally be overwhelmed by “too much information.”

I recently led a discussion on our Analytics and Reporting module at a regional User Connect meeting, and gained a lot of insight from our users. In order to extract maximum value from the mountain of available data, the “right” measures have to be carefully selected. Also, it was apparent that at times less can be more – a few really important measures can overshadow all of the others depending upon your business needs at the time. For example, if you are just starting to roll out the software, usage metrics are supremely important, but for a hospital system, measuring competency gaps might be the most critical. With so much data available, how do you choose what to measure and report?

Simple Framework for Choosing the Right Metrics

Because so many measurements are available after switching to a software-based talent management suite, it is critical to have a framework for choosing the right metrics at the right time.

Know your audience. Figure out who else will be looking at the metrics and what matters to them. A CEO and a recruiting manager will probably want to see different sets of metrics.

Have a goal. Before you measure, you should have an idea of why you are measuring. If your goal is to show a link between turnover and on-boarding cost, find the metrics that relate to help tell your story.

Find the greatest lever. It is likely that you will be able to find dozens of measurements that support your goal, but you should focus on the measurements that will have the most impact, give you the most pull. Always highlight the best “levers” to get results. Using dashboards and other heuristics that may be built into your system are a great way to do this.

It takes a bit of brainwork, but is worth the effort. Rich, meaningful data truly highlights the growing importance of HR and HCM within organizations. If you get stuck, ask questions. Managers and executives will likely be enthusiastic if you can start measuring things that matter to them.

This abundance of data is a completely new problem, but a great problem to have. Dr. Jac Fitz-enz, a SuccessFactors Research Thought Leader and the father of HCM metrics, started making the case for measuring human capital three decades ago , when practically no one had the capability or will to do it. Capability is no longer the problem; today, people can barely keep up with the information. Now, the focus is moving to an even higher level, linking these available human capital metrics to business goals, financial performance, and using predictive metrics to plan for the future. Will you be ready?

Cost, talent, or innovation – which of these three challenges will drive Human Capital Management decisions in the future? The answer is easy: all of them. The question of how to address these drivers is a far more strategic and important question. Charles Grantham, co-author of Corporate Agility, recently joined us to speak with our customers about coming challenges that businesses face due to dramatic shifts in how, where and by whom work is done – a major focus of his recent book and the research he and Jim Ware from the Future of Work are doing. In his presentation, he described 9 strategies for addressing the challenges.

After reading this and engaging in discussions with Charlie, it became apparent that we actually help our customers execute on several of these strategies. We do this in a unique way, enabled by our delivery model and the focus of the product suite in terms of what it actually does for people.

For example, many people think of investing in on-demand solutions as an outsourcing strategy – moving administration away from the core business. But a better way to look at our model is to think of it as an INSOURCING strategy, the customer is INSOURCING a best-in-class and ever improving process. Of course, it is very powerful to let someone else do non-strategic activities faster and cheaper for you. But when you truly INSOURCE, you get the best of two worlds: it is someone else’s core business to figure out the best way to do things, and constantly improve it for you, while also being very cost efficient. That cost efficiency is of course a mutual win for INSOURCE providers and customers.

Effective human capital management processes are critical to INSOURCE. Why? Facilitating teamwork and collaboration is critical for innovation. Finding high potentials, developing their skills, and adapting to the new workplace is critical to closing the talent gap. People are the largest variable cost for most businesses (70%), optimizing their performance is critical to reducing costs. The revolution of on-demand software delivery with the SaaS model enables this phenomenon of being able to INSOURCE strategic processes that support your business’s strategy execution.

Imagine you are on the football field – What if 15% of your performance is dependent on the play you select, and 85% of your performance is dependent on your ability to make the play? Where would you invest most of your time, training your team to pass, catch, run, and block, or picking out the right play?

By and large, studies have found execution is the clear driver of company value and financial performance. How much? Well, about 15% of company’s performance is attributable to strategy – the remaining 85% is attributable to execution, as found by Becker and Huselid’s “ High performance Work Systems and Firm Performance.” Joyce, Nohria, Roberson found a similar ratio in “What really works.”

That’s right – Execution of the strategy is 6 times more important than the strategy itself!

How do you execute on a strategy? In a word: People. At the end of the day, it is the employee who makes things happen, who gets results – not machines, strategies, vendor relationships or what have you. People are your real differentiator and now typically make up 70% of a company’s cost (and growing). This is doubly true in today’s knowledge-focused economy. We see today that about 80% of a company’s valuation cannot be explained by the balance sheet, which shows the growing importance of intangibles and people performance to future cash flow. The value of a company is no longer in its factories, IT systems, or physical assets – it is created by the company’s people.

Your company is in fact already on the field, fighting for customers, revenues, and a competitive position. Instead of “picking out the best play”, focus on what will most help you move downfield toward your goals: people performance, 85% of your success depends on it. Goal alignment, individual accountability, and engagement equal strong execution. Build up these strengths and capabilities of your company to help ensure you can make the big plays. So yes, people performance does matter, because their ability to execute is the key factor in creating value and driving results for your company.

Erik’s note: We’re happy to present this guest post by Chris Lozaga a Research Analyst in SuccessFactors Global Research team

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I once taught a class designed to introduce senior citizens to computers. By far, the internet was the most difficult concept to explain. Teaching file systems was fairly easy – it is not much of a stretch to visualize files in folders. Start up a web browser and the analogy breaks down. All sorts of questions come up, “this file is on my screen, is it in my computer?” “Is this file on their computer?” The complex amalgam that is a webpage, some bits cached locally, others served up from different data centers around the globe, took some time and effort to explain.

Some of the questions raised by my students were eerily prescient, like “Where is here?” Data made the move into the “ether” a decade ago. In many ways, work is woefully behind – still physically tethered to offices, desks, and phone lines.

Recently, Jim Ware and Charles Grantham, principal founders of The Future of Work, and authors of the recently published book Corporate Agility, joined SuccessFactors Research as thought leader partners for a webinar discussing remote work and productivity. The revelations were profound:

• Work will be spread throughout the day and week (24×7), no more 8 to 5 work schedules
• Work will be divided into smaller chunks with cycle times down from months to weeks
• Work will be accomplished in a wide range of locations, 35% home, 35% office, and 30% in-between

As we me make the transition to knowledge work, “here” is no longer a physical place. “Here” is the where the data is, “here” is where the project is. Virtual meetings take place alongside the data, in the ether, not tethered to the physical office.

This is just one example of several, coming, dramatic shifts in attitudes, demographics and the global economy. In the paper Talent Management 2017, Erik Berggren and Jason Corsello examine these changes and show how talent and performance management will actually drive strategy in the future. From this session, one question really sticks out – How can we better collaborate? With a distributed workforce, how can we even find each other when we need to? Software vendors are just starting to answer these questions. One successful innovation that we have brought to market is our employee profile module. It is just the tip of the iceberg, so to speak, in encouraging collaboration. An early adopter of this tool reported that 94% of their employees started using it immediately after deployment, indicating that interest in connecting people is strong. At the end of the day, how could you drive people performance if people can’t even find each other? Where is here? What are your ideas for bringing people together in a distributed world?

Ask HR to provide a list from the payroll and you should get the answer with reasonable accuracy, – right?

Well, with an average 20% of the working population (Manpower estimate) working for one company but technically being paid from another -so called contingent workers- the answer is not that obvious anymore. According to American Management Association 93% of U.S. corporations use some form of contingent workers.

However, far more important than getting an accurate headcount is how you get these value-contributors aligned with your company’s goals and priorities. How do you engage and motivate these people and ultimately, how do you get real performance from them?

The answer is that you need to include all value-contributors, irrespective of how they are being paid, in your strategic HCM plan and execution. Your process for

• aligning goals,
• setting expectations,
• monitoring performance,
• develop skills, etc.

should at a minimum include all your value-contributors and not only those on your payroll.

Whatever your strategy, make sure you include all of the individual value-contributors that participate in its execution.

The challenge of finding people and leveraging their strengths and interests is part of the reason why SuccessFactors today has launched a consumer-inspired Employee Profile solution. In its simplicity it’s genius. The product builds the social network framework automatically from the traditional HRIS information in the system, but then the ownership for enriching the content lies in the hands of individuals, encouraging workers to advertise their strengths and have fun creating and building their profiles. Of course, managers can build on top of the profiles in terms of performance and potential data, etc. This approach to user-managed and user-relevant applications is also inclusive of contingent workers. All value-contributors now have the opportunity to define their own value proposition to the business through self-completion of skill and competency inventories.

SuccessFactors Research and Thought Leader Dr. David Sirota hosted a webinar in which the link between engagement and camaraderie is revealed. Of course building this kind of community, or social network, is crucial to building camaraderie and driving the performance of these value-contributing contingent workers.

But at the end of the day how can you work and collaborate with people that you can’t find nor even know exist?

So the question remains: Do you know who is working for you today?