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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 predictive management model (HCM:21) that uses human capital analytics to forecast the economic value of an organization's investments in people and shift HR from a cost center to a strategic, value-generating function.
The New HR Analytics, by human capital measurement pioneer Dr. Jac Fitz-enz, argues that HR must evolve from anecdote and obsolete experience to a disruptive, analytics-driven discipline that predicts what is likely to happen rather than merely reporting what already did. Building on three decades of metrics development, the book introduces HCM:21 — a four-phase predictive operating model (Scan, Plan, Produce, Predict) that scans external forces and internal factors affecting human, structural, and relational capital; reconstitutes workforce planning as capability building; optimizes HR service delivery as input-throughput-output processes; and integrates strategic, operational, and leading-indicator measurement. Reinforced by essays from thought leaders and real-world case studies (Ingram Content Group, Enterprise Rent-A-Car/Monster, Descon Engineering, UnitedHealth Group, and a federal agency), the book equips managers and HR professionals to manage tomorrow, today — making better, lower-risk decisions about acquiring, deploying, developing, and retaining talent in a volatile global market.
The four lenses
- Science
- Statistics
- Systems
- Strategy
The model
A causal/path model in which design levers (environmental scanning, capability planning, process optimization, integrated synchronized delivery) and contextual conditions act through psychological and behavioral states (engagement, competence, organizational opportunity, leadership perception, succession readiness, turnover) to drive outcome metrics (workforce productivity, revenue growth, return on human capital). Predictive analytics and integrated measurement link the phases.
Environmental Scanning and Risk Assessmentdesign lever
The systematic, broad and deep study of external market forces and internal organizational factors, including their interconnections, and the rating and mitigation of associated risks affecting human, structural, and relational capital.
Capability and Succession Planningdesign lever
The forward-focused practice of building sustainable strategic human capability by segmenting skills into mission-critical, differentiating, operational, and movable categories and ensuring readiness of high-potential talent for key positions rather than merely filling positions.
HR Process Optimizationdesign lever
The analysis and improvement of HR services modeled as inputs, throughputs, and outputs to discover the most cost-effective combination of sources and methods that produce desired outcomes, collapsing functional silos.
Integrated Synchronized Service Deliverydesign lever
The coordinated, time-synchronized delivery of all HR functions around a common organizational goal so that planning, staffing, compensation, development, and relations reinforce rather than fragment each other.
Integrated Predictive Measurement Systemdesign lever
A three-point measurement and analytics capability linking strategic, operational, and leading indicators, applying statistical and causal analysis to turn data into business intelligence and predictions.
Market Volatility and Competitive Conditionscontextual condition
The contextual condition of intense global competition, economic uncertainty, technological change, and labor-market shifts that increase decision risk and the need for predictive management.
Workforce Competencepsychological state
The collective state of a group or organization being adequate, well-qualified, or masterful at performing required jobs measured against standards, reflecting readiness to contribute (the 'ready' element of the CEO success formula).
Employee Engagementpsychological state
An individual's degree of positive or negative emotional attachment to the organization, job, and colleagues, reflecting willingness to contribute (the 'willing' element of the CEO success formula).
Organizational Opportunitypsychological state
The degree to which employees are placed in the right roles at the right time with the chance to contribute, advance, and grow (the 'able' element of the CEO success formula).
Succession Readinessbehavioral pattern
The percentage of mission-critical and key positions with at least one high-potential person ready to step in, reflecting organizational resilience and bench strength.
Employee Turnover and Retentionbehavioral pattern
The behavioral outcome of employees leaving (controllable or uncontrollable) or being retained, driven by disengagement, push and pull factors, and triggering events.
Workforce Productivityoutcome metric
The output and performance of the workforce relative to standards, including time-to-full-productivity and cost-per-unit, representing the operational result of capability and engagement.
Return on Human Capital and Financial Performanceoutcome metric
The economic value generated by human capital investments, including return on human capital, revenue growth per FTE, EBITDA, and overall financial performance.
How they connect
- environmental scanning → predicts capability planning
- capability planning → predicts succession readiness
- succession readiness → predicts return on human capital
- process optimization → predicts workforce productivity
- integrated delivery → moderates workforce productivity
- employee competence → predicts workforce productivity
- employee engagement → predicts workforce productivity
- organizational opportunity → moderates workforce productivity
- employee engagement − predicts employee turnover
- employee turnover − influences workforce productivity
- workforce productivity → predicts return on human capital
- integrated measurement → moderates return on human capital
- market volatility → moderates integrated measurement
- environmental scanning → influences integrated measurement
A candidate measure
The New HR Analytics: Predicting the Economic Value of Your Company's Human Capital Investments — derived measurement candidates
Environmental Scanning and Risk Assessment
Number/breadth of forces identified; Risk likelihood and impact scores; Presence of mitigation playbooks
self-report suitability: low
Capability and Succession Planning
Percentage of high-potential programs operational; Readiness coverage by skill segment; Skill-segment classification counts
self-report suitability: low
HR Process Optimization
Cost per hire; Cost per paycheck; Correlation of source/method with performance and tenure
self-report suitability: low
Integrated Synchronized Service Delivery
Degree of alignment with corporate objectives; Frequency of cross-functional coordination; Synchronization timing measures
self-report suitability: low
Integrated Predictive Measurement System
Number of leading indicators tracked; Frequency of reporting; Use of metrics in decisions; Correlation/regression outputs
self-report suitability: none
Market Volatility and Competitive Conditions
Unemployment and payroll trends; Resumes-per-posting ratios; Monster Employment Index; Talent density and demand indices
self-report suitability: none
Workforce Competence
Aggregated performance-appraisal scores by work group; Competence index; Competency-gap measures
self-report suitability: medium
Employee Engagement
Engagement survey index across fifteen drivers; Group engagement scores; Fair-treatment perception scores
self-report suitability: high
Organizational Opportunity
Opportunity index from survey items; Career-path availability; Promotion/assignment rates
self-report suitability: medium
Succession Readiness
Readiness ratio; Percentage of positions with active replacement plan; Percentage trained for direct replacement
self-report suitability: low
Employee Turnover and Retention
Turnover rate (controllable/uncontrollable); Retention rate; Tenure at departure; Departure-sign checklist counts
self-report suitability: medium
Workforce Productivity
Revenue per FTE; Production-to-standard percentage; Time to full productivity (days); Cost per unit
self-report suitability: low
Return on Human Capital and Financial Performance
HCROI; HCVA; EBITDA; Revenue per FTE; Stock performance
self-report suitability: none
The story
The reader An HR or line manager who wants to be respected as a strategic business partner and to demonstrate the measurable economic value of investments in people.
External problem
HR is viewed as an expense center disconnected from strategy, lacking a predictive management model and unable to quantify the value it generates.
Internal problem
The manager feels disrespected, behind the curve, and anxious about making high-risk people decisions without supporting data.
Philosophical problem
It is simply wrong to treat the organization's most valuable asset — its people — anecdotally and reactively when analytics could turn human capital into a managed, predictable investment.
The plan
- Scan external forces and internal factors affecting human, structural, and relational capital, and assess risk.
- Plan for capability rather than positions, segmenting skills and building succession.
- Produce value by analyzing and optimizing HR services as input-throughput-output processes and collapsing silos.
- Predict using an integrated three-point measurement system of strategic, operational, and leading indicators.
- Apply analytics to find connections, calculate ROI, and manage tomorrow, today.
Success
- HR earns a respected seat at the table and is treated as a strategic partner.
- Decisions about hiring, training, retention, and succession are made with reduced risk and predictable returns.
- The organization gains competitive advantage and top-line growth by managing human capital as an investment.
- People are seen as assets rather than expenses, with services managed as essential business tools.
At stake
- HR continues to be outsourced, parceled out to finance and operations, or dismantled.
- The organization remains behind the curve, making high-risk decisions on intuition and obsolete experience.
- Talent is lost, productivity suffers, and the company falls behind competitors in the war for talent.
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