By Karl Ahlrichs
I have learned a few fundamental truths about CFOs: They like efficiency and accountability, dislike making snap decisions and are always looking for a better forecasting model.
They also appear to prefer hybrid cars with high efficiency and real-time dashboard displays on how the vehicle is performing.
For some of these reasons, they generally mistrust the metrics offered by Human Resources about the state of the organization’s human assets.
However, optimism may soon replace this skepticism as AI tools revolutionize HR metrics. These tools enable real-time analysis of what have traditionally been considered HR’s “soft numbers.” This game-changer offers a new era of trust and reliability in HR metrics, which should help in solving the talent shortage.
AI: Bridging the trust gap in HR analytics
Finance has long been frustrated by “soft” HR metrics. Hopefully, the tide is turning. By embracing a more forward-looking set of metrics that measure reliable predictors, we can build better feedback loops to support better decisions. Using AI to construct a functional human capital financial statement is not just a possibility but a significant competitive advantage that we can confidently look forward to.
I understand that financial statements are, by nature, backward-looking, and this work is trying to offer data that anticipates (and plans for) risks. While we are just beginning the process, I am pleased that the conversation is finally beginning about what “dials” should be on the “dashboard.”
Building the next-generation HR dashboard
Let me give some examples that might help clarify the importance of getting the numbers right. Many traditional metrics for HR are well accepted but may not be that useful. For example, it is often thought that measuring the employee turnover rate is a high-quality metric, as it is easy to calculate, and common sense says that lower turnover is better. Not so fast.
Most organizations do not track the data needed to show the turnover of high performers vs. low performers. You want a high turnover rate for the low performers, right? This means you must align the performance-management system with the turnover data.
More advanced organizations are starting to link low turnover rates of high performers to higher bonuses for individual managers and supervisors. Behavior rewarded is behavior repeated.
Taking the example further, in the future human capital financial statement, there will be a “high-performing employee differential” that enumerates high performers’ impact on an organization.
If the performance-management system measures the number and quality of high-performance employees, the metric can reliably appear on the dashboard. Is the wellness program paying off by helping motivate high performance? The accuracy of the metric comes down to the quality of the data. It’s all connected.
Meaningful metrics for high performance
I have often been puzzled by HR departments’ willingness to stick with meaningless metrics for decades. We measure the hiring speed, but not the quality of new hires.
Instead of the quality of what is leaving, we measure the turnover rate. Furthermore, we measure the headcount, yet we don’t measure the productivity. Finally, we measure participation, but not behavior change. And so on.
Human capital and talent management are differentiators of success and sources of competitive advantage. In the future, human capital will finally be reported as a part of public financial statements. This will be big.
Human capital takes the financial spotlight
I work in HR, and we HR leaders have known for quite some time that talent management, well-being and D&I are important. Over the past decade, we have worked hard to get our recruiting, learning, total compensation, performance management, engagement and other practices in order. With AI-generated human capital financial statements, I hope we finally see a payoff.
My call to action for leaders is clear: Demand more meaningful HR metrics. Use these metrics to address the talent shortage and build sustainability. The power to drive change is in your hands. It’s time to act!
Karl Ahlrichs is a national speaker, virtual facilitator and author. He has decades of strategic HR consulting to all industries, using risk management and organizational development theories to bypass “best practices” and move directly to “next practices.”
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