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The New HR Analytics: Predicting the Economic Value of Your Company's Human Capital Investments
Jac Fitz-enz · 2010
In a sentence
A guide for transforming Human Resources from a reactive cost center into a strategic, value-creating partner by applying a four-phase predictive analytics model (HCM:21) to manage human capital and forecast business outcomes.
In a business world defined by volatility and intense competition, managing your organization's most valuable asset—its people—with outdated methods is a recipe for failure. 'The New HR Analytics' provides a disruptive and practical roadmap for moving beyond traditional, backward-looking HR metrics. Author Jac Fitz-enz, the pioneer of human capital measurement, introduces HCM:21®, a groundbreaking four-phase predictive management system: Scan the market, Plan for future capability (not just fill jobs), Produce value through optimized HR processes, and Predict business outcomes using a powerful trifecta of strategic, operational, and leading indicators. This book is an essential toolkit for any leader, HR professional, or manager who wants to stop guessing, start predicting, and finally prove the direct link between smart people-investments and the bottom line.
The four lenses
- Science
- Statistics
- Systems
- Strategy
The model
This model, inferred from the book's central HCM:21® framework, posits that the systematic implementation of four predictive management levers (Scanning, Capability Planning, Process Optimization, and Predictive Measurement) enhances key workforce states and processes (such as Capability Alignment, Engagement, and Retention), which in turn drive improved workforce productivity, financial performance, and sustainable competitive advantage.
Strategic Environmental Scanningdesign lever
The systematic process of analyzing external market forces (e.g., economy, competition, labor supply) and internal organizational factors (e.g., culture, strategy, finances) to understand their potential impact on the organization's human, structural, and relational capital.
Capability-Focused Planningdesign lever
A forward-looking workforce and succession planning approach that moves beyond simple gap analysis to strategically building sustainable human capability. It involves skills segmentation (mission-critical, differentiating, etc.) and scenario-based planning for future talent needs.
HR Process Optimizationdesign lever
The practice of analyzing and improving HR services (e.g., staffing, training, retention) as integrated input-throughput-output processes to identify and implement the most cost-effective combination of activities that drive desired organizational outcomes.
Predictive Measurement Systemdesign lever
A comprehensive, integrated three-point measurement system that links strategic, operational, and leading indicators. This system uses analytics to turn disparate data into business intelligence that can predict future likelihoods and inform decision-making.
Workforce Capability Alignmentpsychological state
The degree to which the workforce's collective skills, competencies, and knowledge match the strategic capabilities required for the organization to execute its business strategy and achieve its goals, both now and in the future.
Employee Engagementpsychological state
The emotional and intellectual commitment of employees to the organization, its values, and its goals, leading to discretionary effort and behavior aimed at furthering the organization's success. It encompasses willingness, satisfaction, and commitment.
Talent Retentionbehavioral pattern
The organization's ability to prevent the voluntary departure of valued employees, particularly those in mission-critical roles or identified as high-potential talent. It is the inverse of undesirable turnover.
Leadership Effectivenesspsychological state
The quality of leadership within the organization, including the readiness of the leadership pipeline and the ability of current leaders to drive performance, engage employees, and execute strategy. A key component of human capital.
Workforce Productivityoutcome metric
The efficiency and effectiveness of the workforce in generating economic value, measured as the ratio of organizational output (e.g., revenue, units produced) to labor input (e.g., full-time equivalents, labor costs).
Organizational Financial Performanceoutcome metric
The overall financial health and success of the organization, reflected in key financial metrics such as revenue growth, profitability (EBITDA), and return on assets.
Sustainable Competitive Advantageoutcome metric
The organization's ability to consistently outperform competitors over the long term by leveraging unique, inimitable resources, with human capital being the primary source of such advantage.
How they connect
- strategic environmental scanning → influences capability focused planning
- capability focused planning → predicts workforce capability alignment
- capability focused planning → influences leadership effectiveness
- hr process optimization → influences talent retention
- predictive measurement system → influences hr process optimization
- leadership effectiveness → predicts employee engagement
- employee engagement → predicts talent retention
- employee engagement → predicts workforce productivity
- workforce capability alignment → predicts workforce productivity
- talent retention → influences workforce productivity
- workforce productivity → predicts organizational financial performance
- organizational financial performance → influences sustainable competitive advantage
The process
The New HR Analytics presents a comprehensive playbook for transforming Human Resources from a reactive, administrative function into a strategic, predictive business partner. The core of this playbook is the HCM:21® (Human Capital Management for the 21st Century) model, a four-phase process designed to enable organizations to 'manage tomorrow, today.' This methodology shifts the focus from managing HR activities to managing the organization's human capital as a strategic asset. It achieves this by systematically applying data and analytics to people-related decisions. The playbook begins with a broad environmental scan to understand market forces and internal factors, including a formal risk assessment. It then moves to a new form of workforce planning focused on building future 'capability' rather than simply filling current job vacancies. The third phase involves analyzing and optimizing HR services like staffing and development as integrated processes, using statistical methods to maximize their cost-effectiveness and impact. The final phase ties everything together with a predictive, three-tiered measurement system—linking strategic, operational, and leading indicators—to generate true business intelligence. This integrated, data-driven approach allows leaders to predict the economic value of their human capital investments and make informed decisions that drive competitive advantage.
Implementing the HCM:21 Predictive Management Model
To transform human capital management from a reactive, expense-focused function into a proactive, strategic, and predictive capability that aligns people management with business goals and drives competitive advantage.
When to use: When an organization needs to move beyond traditional, reactive HR practices to strategically manage its workforce, align HR with business strategy, and use data to predict and influence future business outcomes.
Step 1Conduct a strategic scan of all external market forces and internal organizational factors that could affect the organization's human, structural, and relational capital.
Entry: The organization has committed to adopting a strategic approach to human capital management.
Exit: A comprehensive map of relevant forces, factors, and their potential impacts is documented.
In: Market research, Competitor analysis, Economic forecasts, Internal business plans, Leadership interviews · Out: A matrix showing the potential impact of external forces and internal factors on human, structural, and relational capital
Step 2Identify and assess potential risks derived from the environmental scan that could impact human capital management.
Entry: The strategic scan is complete.
Exit: A documented risk assessment and mitigation plan is created.
- Which risks require immediate mitigation plans?
- What is the appropriate response strategy for each significant risk (avoid, transfer, reduce, accept)?
In: Output of the strategic scan · Out: A risk assessment matrix, A risk-mitigation plan
Step 3Reframe workforce planning as capability planning, focusing on building sustainable human capability for the future rather than just filling current positions.
Entry: The strategic scan and risk assessment are complete.
Exit: A strategic capability plan is developed.
In: Strategic scan results, Risk assessment, Business strategy · Out: A strategic capability plan
Step 4Segment the workforce into categories based on the value and criticality of their capabilities to guide investment decisions.
Entry: The capability planning framework has been established.
Exit: The workforce is segmented and an investment strategy is defined for each segment.
- Which roles/skills fall into each of the four categories?
- How will development and retention investments be allocated across the segments?
In: Current workforce data, Business strategy, Capability plan · Out: A segmented workforce map, An optimized human capital investment strategy
Step 5Analyze HR services like staffing, development, and retention as distinct processes with inputs, throughputs, and outputs.
Entry: Key HR services to be analyzed have been identified.
Exit: Process maps for key HR services are created.
In: Existing HR process documentation, Operational data from HR systems · Out: Process maps for key HR services
Step 6Apply statistical analysis to uncover the most cost-effective combination of inputs and throughputs to produce the desired outputs for each HR process.
Entry: Process maps and relevant historical data are available.
Exit: An optimized model for each key HR process is defined.
In: Process maps, Historical data on HR activities and employee outcomes (e.g., performance, tenure) · Out: Optimized HR process models, An algorithm or formula for predicting process outcomes
Step 7Collapse functional silos by integrating and synchronizing the delivery of all HR services.
Entry: HR processes have been analyzed and optimized.
Exit: An integrated HR service delivery plan is in place and being executed.
In: Optimized HR process models, Overall business plan · Out: An integrated HR service delivery plan and schedule
Step 8Design and implement a three-point measurement system that links strategic, operational, and leading indicators.
Entry: The organization's strategic KPIs are clearly defined.
Exit: A comprehensive measurement framework with defined metrics for each of the three levels is implemented.
- Which metrics are the most critical for each of the three levels (strategic, operational, leading)?
In: Business strategy and KPIs, HR operational data, Employee survey data · Out: A measurement framework and dashboard
Step 9Apply analytics to connect metrics and generate business intelligence.
Entry: Data is being collected through the three-point measurement system.
Exit: Regular business intelligence reports are being produced and used for decision-making.
In: Data from the three-point measurement system · Out: Business intelligence reports, Dashboards, Predictive models that inform strategic decision-making
The story
The reader The reader is an ambitious HR professional, line manager, or business executive who feels their organization's approach to people management is outdated and reactive. They want to transform HR into a strategic powerhouse that earns a seat at the table by demonstrating tangible, bottom-line value, but they lack a clear framework and the right language to do so.
External problem
The HR function is perceived as a disconnected administrative cost center, constantly forced to justify its existence with anecdotes while its budget is the first to be cut. Its initiatives are seen as intrusive chores rather than value-adding services, and it remains perpetually behind the curve of business needs.
Internal problem
The reader feels frustrated, undervalued, and anxious about their function's relevance. They are drowning in data but starving for insight, unable to connect their daily activities to the strategic goals of the company.
Philosophical problem
It's just plain wrong that an organization's most critical asset—its people—is managed with less strategic foresight and quantitative rigor than its inventory or equipment. HR should be the engine of competitive advantage, not an administrative afterthought.
The plan
- Phase 1: Scan your environment by analyzing the external forces and internal factors that impact your human, structural, and relational capital.
- Phase 2: Plan for the future by shifting from reactive 'gap-filling' to proactive 'capability planning' using skills segmentation and scenario analysis.
- Phase 3: Produce value by analyzing and optimizing HR services as integrated processes with measurable inputs, throughputs, and outputs.
- Phase 4: Predict outcomes by implementing an integrated three-point measurement system that turns historical data and leading indicators into predictive business intelligence.
Success
- You become a respected strategic partner who makes data-driven decisions and communicates value in clear business terms.
- Your HR function demonstrates a clear ROI, directly contributing to productivity, profitability, and sustainable competitive advantage.
- Your organization becomes more agile, better at managing risk, and more effective at deploying its talent to win in the marketplace.
- Your career is enhanced as you become a leader in the new era of strategic human capital management.
At stake
- The HR function remains a marginalized, reactive cost center, vulnerable to outsourcing and downsizing.
- Your organization continues to mismanage its most vital asset, making poor talent decisions and falling behind more analytically savvy competitors.
- You remain stuck in a frustrating cycle of administrative tasks, unable to demonstrate your true strategic value.
- The opportunity to lead a fundamental business transformation is missed.
Chapter by chapter
ch01Disruptive Technology: The Power to Predict
This chapter explores the transformative potential of analytics in understanding and leveraging disruptive technologies, highlighting a framework for predicting outcomes and guiding decision-making in organizations.
ch02Toward Analytics and Prediction
This chapter examines how analytics, when effectively harnessed, can transform decision-making processes in management by predicting outcomes and enhancing strategic human capital management.
ch03Scan the Market, Manage the Risk
This chapter emphasizes the necessity of statistical analysis and risk assessment in navigating market uncertainties, focusing on how predictive management can optimize HR processes.
ch04The New Face of Workforce Planning
This chapter challenges traditional workforce planning by emphasizing a shift toward capability planning and the need for organizations to adapt to uncertainty and enhance employee engagement.
- Capability planning is essential for organizations to remain competitive and responsive in a rapidly changing business environment.
- Traditional workforce planning methods are becoming obsolete; flexibility and adaptability are now paramount.
- Effective measurement of employee engagement (hucametrics) can significantly influence retention and performance.
- Linking pay to performance isn't just about incentivizing; it's about fostering a culture of accountability and recognition.
ch05Collapsing the Silos
This chapter argues for the imperative integration of Human Resource services across organizational silos to enhance efficiency and leverage human capital investment.
ch06p01Turning Data into Business Intelligence (part 1/3)
This chapter unpacks the evolution of metrics in human capital management, exploring the critical shift from reactive to predictive analytics that can drive business intelligence.
- Transitioning HR metrics from qualitative to quantitative formats is critical for demonstrating value to organizational leadership.
- Benchmarking and predictive analytics are essential tools for advancing HR’s role within strategic planning.
- HCM:21 represents a holistic approach to integrating human capital metrics with overall business objectives.
- The use of data must go beyond mere collection; organizations should adopt a forward-looking perspective that guides decision-making.
ch06p02Turning Data into Business Intelligence (part 2/3)
Effective decision-making in organizations hinges on a structured process that begins with a clear decision statement and the establishment of specific objectives, ensuring clarity and alignment throughout the decision cycle.
- A decision statement creates clarity and focus among decision-making groups.
- Developing well-defined objectives is critical for unbiased evaluation of alternatives.
- Classifying objectives into “musts” and “wants” streamlines decision-making efficiency.
- Evidence-based decision-making minimizes biases and fosters a culture of rationality.
ch06p03Turning Data into Business Intelligence (part 3/3)
In an unpredictable business landscape, organizations must move beyond merely imagining future scenarios to implementing a structured playbook that transforms those scenarios into actionable strategies.
- Developing a strategic playbook transforms disparate scenarios into actionable, pre-planned strategies for businesses faced with uncertainty.
- Preparation through playbook creation allows organizations to anticipate shifts in the marketplace, enhancing their resilience and responsiveness.
- The comparison to athletic playbooks emphasizes the practicality of rehearsing strategic responses to market conditions.
- Fostering a culture of scenario planning cultivates creative approaches to problem-solving, embracing ambiguity instead of fearing it.
ch07Collapsing the Silos
The chapter argues that collapsing the silos within organizations through effective process analysis in human capital management not only enhances operational performance but also redefines the role of HR as a strategic partner in completing corporate initiatives.
- Effective process analysis collapses organizational silos, enabling HR to transform from a passive to an active business partner.
- Inputs, throughputs, and outputs model provides a navigational guide for improving HR functions and aligning them with business strategy.
- The traditional perception of HR as a bureaucratic annoyance can be countered by demonstrating the strategic value of HR processes to line managers.
- Ongoing feedback from operational staff can yield valuable insights that drive HR efficiency and enhance employee experiences.
ch08Turning Data into Business Intelligence
The chapter explores how effective human capital analysis and predictive metrics transform data into actionable business intelligence, helping organizations navigate complexity and improve decision-making.
- Relying solely on anecdotal evidence leads to significant misinterpretations of workforce dynamics and organizational health.
- Integrative human capital measurements are essential for organizational success, allowing leaders to assess and optimize human resource investments.
- Predictive analytics can transform raw data into meaningful intelligence that guides strategic decision-making.
- Business intelligence derived from integrated data fosters a proactive approach in managing risk and enhancing performance.
ch09Impacting Productivity and the Bottom Line: Ingram Content Group
This chapter chronicles how Ingram Content Group transformed its soaring employee turnover into a strategic advantage, significantly impacting productivity and enhancing the bottom line through targeted human capital management.
ch10Leveraging Human Capital Analytics for Site Selection: Monster and Enterprise Rent-A-Car
This chapter examines the strategic approach taken by Enterprise Rent-A-Car in selecting a site for a new customer contact center, utilizing Monster’s human capital analytics framework to enhance the decision-making process and optimize talent acquisition.
ch11Predictive Management at Descon Engineering
Descon Engineering Limited transitions through various structural strategies, from missed opportunities in decentralization to establishing a predictive management framework to ensure systematic organizational growth and maturity.
ch12Working a Mission-Critical Problem in a Federal Agency
This chapter examines how the Research Economic Services agency faced criticism for inefficiencies and how it sought to improve the measurement of success through the application of predictive management principles.
- Successful project management in federal agencies relies on a clear understanding of the competencies that drive organizational effectiveness.
- The absence of objective performance metrics significantly complicates accountability and hinders the ability to measure project success.
- Constructing surrogate dependent variables can provide invaluable insights in environments characterized by incomplete data.
- Leadership, integrity, and decisiveness emerge as critical traits for effective project managers, transcending organizational boundaries.
ch13UnitedHealth Group Leverages Predictive Analytics for Enhanced Staffing and Retention
UnitedHealth Group employs predictive analytics to enhance its HR management strategies, addressing labor shortages and improving staff retention in a high-stress healthcare environment.
ch14p01Look What’s Coming Tomorrow (part 1/2)
This chapter articulates the imperative for organizations to adopt predictive management strategies through human capital analytics to thrive in an increasingly complex future.
- Effective management of human capital is essential for success in the twenty-first century.
- The adoption of predictive analytics transforms HR from a transactional function to a strategic partner.
- Organizations must shift from relying solely on historical data towards an anticipatory, data-driven approach.
- Recognizing employees as assets rather than costs will redefine the approach to talent management.
ch14p02Look What’s Coming Tomorrow (part 2/2)
This chapter examines the evolving landscape of human capital analytics, emphasizing its integral role in future organizational success amid technological and market transformations.
Questions this book answers
- How can the Human Resources function evolve from a reactive administrative expense into a proactive strategic partner?
- What is predictive analytics and how can its principles be practically applied to human capital management (HCM)?
- What is the HCM:21® model, and how does its four-phase process (Scan, Plan, Produce, Predict) provide a holistic system for managing talent?
- How can organizations leverage existing data to analyze and optimize HR processes like staffing and development to improve business results?
- How can HR build an integrated measurement system that links leading indicators (like engagement and leadership) to operational performance and strategic financial outcomes?
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