1. Defining Valueand Measuring HR Mark O Donnell,Director and Practice Leader, Human Capital Advisory Services, Consulting

2. Agenda Defining the Value of HR Introduction2 HR Strategy 6 Understanding the business 8 Define your HR Strategy 14 Measuring Impact of HR 18 Assess HR Function 25 Reassess HR Service Delivery 34 Conclusion 42 Questions 3. Context

• • If you cant quantify the value that HR has on the Business, how do you prove your worth?

Defining the Value of HR 4. Marketplace Trends

• Competition for funds and resources is todays reality

• Major change and turbulent market conditions make it hard for Boards to determine what the strategy should be

• Top management want to know the Return On Investment for all they spend including leadership development and talent initiatives

• These more complex economic conditions offer an opportunity not only to rethink business strategies but also HR strategy, if HR is core to the business strategy

• More and more of our clients are telling us that there is particular focus on HR departments to ensure thatAllHR investments deliver quantifiable measurable value.

• • How can HR demonstrate a quantifiable return on investment for Human Capital initiatives?

• • Which HR initiatives can be directly targeted at building organisation capability that has a bottom-line impact either increasing the organisations revenue or reducing costs?

Defining the Value of HR 5. People are Critical to Business Performance

More than 85% of senior business executives and HR leaders agree that people are vital to every aspect of their organisations performance

HR leaders and senior business executives agree the most critical people issues are:

• Leadership development and pipeline

• Talent management

• Creating a high-performance culture

• Training and development

Source:Aligned at the Top ,a global survey on people and business challenges conducted by Deloitte Touche Tohmatsu and the Economist Intelligence Unit 6. There is a gap between HR capabilities and business needs

Senior business executives want HR to be more effective

• Only 4% describe HR as highly effective in addressing the needs of the business

• 60% describe HR as only moderately effective

People and HR are often treated as separate conversations

• People issues are considered strategic, e.g. leadership development and pipeline, talent management, creating a high-performance culture, training and development

• HR issues are perceived as administrative, e.g. compensation and benefits, performance evaluations, HR operating efficiency

HR is often out of the loop on strategic issues

• Percentage of companies that rarely or never consult their senior HR team on key business issues:

• • Mergers and acquisitions (63%)

• • Compliance and regulation (26%)

• • Talent (25%)

7. HR Strategy Defining the Value of HR 8. HR Strategy Deloitte view

A HR strategy should help an organisationcreate unique competitive advantageby outlininghow the HR function and the services it offerswill create business value and address the companys most pressing strategic challenges.

The strategy shouldidentify priorities for investmentin HR products and services and in HR service delivery (people, process, technology, operations, etc.) to help address the organisations most pressing strategic challenges.

The strategy should include aroadmap for how the HR function will execute on the strategy.

The strategy should also outline thefoundational HR capabilitiesrequired to effectively execute the strategy.

Typically, the HR strategy will be a two to three year strategy, but it should be refreshed every year.

Before forming your strategy you need to understand the Business

9. Understanding Business Strategy Defining the Value of HR 10. Questions to Ask

• What does the Business do to drive performance?

• Who are our shareholders and what do they want?

• What does our Business do?

11. What do the sections of the EVM HC represent? 1. Value Drivers How value is created 12. Value Drivers -How Value is Created 13. EVM HC: Changing the Mindset of How HR Operates

HR has traditionally been viewed as an overhead cost that is highly transaction-based.

Behind every great product, service, and innovation are people.

Sustained Growth

• Merger Integration

• New Market Entry

• Sales force Transformation

• Rewards Transformation

Global Labor Shortage

• Workforce Planning

• New Market Entry

• Global Mobility

• Learning and Development

• Outsourcing and Offshoring

Risk & Compliance

• Global Workforce Security

• Regulatory Compliance

• Risk Management

Future Capabilities

• Change Management

• Global Program Management

• Leadership Development

Operating Margin Asset Efficiency Expectations Revenue Growth Volume DirectCosts (COGS) IndirectCosts (SG&A) IncomeTaxes S H A R E H O L D E RV A L U E Property, Plant & Equip. Inventory Receivables & Payables Company Strengths External Factors Price 14. Human Capital Dimensions -Categories of Improvement Focus

The Human Capital Dimensions embedded within the map show the seven major Human Capital categories of improvement within an organisation.

Human Capital Dimensions Talent Strategies: Talent-focused activities to execute short and long term business objectives Learning and Development: Activities in support of employee and executive developmentChange Management and Transformation: Activities focused on the people implications of major business events Organizational Strategies: Activities in support of business initiatives that focus on developing organization and team structures Employee Rewards and Benefits: Activities that link employees work experience to their commitment and contribution to business value Governance, Risk, and Compliance: Activities to proactively manage the people-related aspects of risk, regulations, security, compliance, and ethics HR Strategy and Services:Activities focused on HR strategy and service delivery 15. Define HR Strategy Defining the Value of HR 16. Step 1: Understand Strategic Priorities &Business Context

Example:

• +10% Annual Growth Target

• Improve Product Development Pipeline and Deployment

• Increase Share of Revenue Capture from Advertising

• Improve Product and Service Mix

Acquire New Customers Retain and Grow CurrentCustomers Leverage Income - Strengthen Pricing Marketing&Sales AccountManagement Cross - Sell / Up - Sell Retention Demand&SupplyManagement PriceOptimization Product&ServiceInnovation Cash / AssetManagement Volume Price Realization Revenue Growth Generating Assets 17. Step 2: Identify Issues & Challenges Example Strategic priorities and HR strategic actions:Exponential Headcount Increase: Focus on recruiting and selection, retention practices, talent placement, and employee development. HR Organization Transformation: Optimize the HR function. Enterprise Cost Reduction: Maximize investments and spend on human capital to focus on business issues, operational efficiencies, and process excellence. Focus on Customer Service: Build a culture of high performance and innovation with a focus on the customer. Post Merger Integration: Support rationalization of core process, technology, people, and policy with a defined project portfolio. 18. Deloittes HR strategy framework Deloitte HR Strategy Framework

Define Value

Understand business strategy

Define HR strategy

Identify HRs meaning

Deliver Value 7. Establish a delivery model for HR services 8. Upgrade the companys HR capabilities 9. Continuously improve HR operations 10. Communicate the value of HR services Define Value

Align HR Services

Segment stakeholders

Prioriti`se HR investments

Design HR services

19. Measuring Impact of HR Defining the Value of HR 20. HR Balanced Scorecard?

The Balanced Scorecard is a means of connecting key decisions and control, that measures the value created by initiatives to the core business areas,compares program benefits to costsincluding:

• Customer Experience:How do customers see us?Business Impact & Satisfaction Measurements

• Talent Strategies:What must we excel at?Learning and application measures knowledge, skills and attitudes and on-the-job behaviours

• Process and Innovation:Can we continue to improve and create value?

• Financial Focus:How do we look to shareholders?

• The HR Balanced Scorecard aligned to business strategies measures improvement in customer value

Defining the Value of HR The Balanced Scorecard fills the void that exists in most management systems the lack of a systematic process to implement and obtain feedback about strategy (Kaplan & Norton, 1996). 21. Best Practice Design: Characteristics of a Successful Scorecard Defining the Value of HR Involves the scorecard owner in the design Characteristics Makes efficient use of managers time Understandable & transferable Easily aligned across the organisation Only this person knows the answers Management time is scarce Must be communicated across the organisation Reason Help the whole company work towards a common goal 22. Value of a Balanced Scorecard HR Transformation HR Value Defining the Value of HR HR Transformation HR Value Balanced Scorecard

• The Balanced Scorecard examines the evidence of key HR Initiatives linking them to business performance measures that drive Business Strategy

• The value of using a Balanced Scorecard, HR can fuel more sustainable employee initiatives with longer-lasting results

The Balanced Scorecard works as an umbrella concept that links together organisational objectives, ways of thinking and management tools. 23. Overall HR Scorecard Client Example

Legend (Link to Critical HR Capabilities)

Talent Management

Leadership Development

Organisational Development

HR Administration

Financial

Average termination cost

Cost of turnover

Cost of acquisition per hire

HR Training spend (per Manager / Director / Executive)

HR FTE Ratio

SLA compliance

Vendor Management FTE Ratio +

HR Operating Expense/FTE

Customer Experience

Hiring Manager satisfaction with quality of new hires

Employee satisfaction with Career Zone

Employee satisfaction with career progression

Business unit satisfaction with organisation design support

Employee engagement index

Frequency of communication

Response rates on effectiveness surveys

Employee HRO satisfaction

Self-service availability rate

Portal usage penetration rates

Process / Innovation

Line manager use of recruitment centers

Share of employees with basics in place day one

Time to efficiency for new hires

Time to identify & approve leadership training request

Course enrollment and completion rates

Share of positions with successor identified

Number of job families for which there are established career paths

Share of business using consistent change leadership framework

Number of issues at level 1, level 2 or level 3 support

Talent

Number of critical positions and critical workforce segments identified

Retention of new hires

Retention rates by critical workforce segments

Leadership stability rates

Number of internal leadership appointments

Share of leaders reviewed in talent review process

Timeliness of talent reviews

Number of employee referrals

Diversity of leadership team

Outsourcer turnover rate

Potential Metrics 24. Metrics for critical HR capabilities and services can be identified Financial Customer Experience Process & Innovation Talent client x Case use in Roadmap Section Potential Talent Management Metrics Client Example Workforce Planning & Segmentation

Cost of workforce planning process

Business unit satisfaction with workforce planning process

Workforce planning process performed annually and linked to budgeting process

Number critical positions and critical workforce segments identified

Share of critical jobs held by those with high / low performance levels

Talent Sourcing & Acquisition

Cost of sourcing & acquisition process

Cost of acquisition per hire

Business case savings realization for Career Zone implementation

Referral bonus cost per hire

Hiring Manager satisfaction with recruiting process

Hiring Manager satisfaction with quality of new hires

Employee satisfaction with Career Zone

Number of positions where talent pool is already identified

Time to fill positions

Recruitment source ratio

Requisition response rate

Referral conversion rate

Applicant conversion rate

Interview conversion rate

(First) offer acceptance rate

Ratio of contractors to full-time staff

Share of new hires receiving top performance rating

Management accountability for the quality of new hires

Share of new hires leaving the organizations within 6 months

Employee tenure by sourcing method

Poor quality hire rate

On-Boarding& Orientation

Cost of on-boarding process

Employee / Manager satisfaction with on-boarding process

Share of employees with basics in place day 1 (phone computer, etc)

Time to efficiency for new hires

Management accountability for on-boarding process

Retention of new hires

Retention

Cost of recognition practices

Average termination cost

Cost of turnover

Compensation impact of replacement hires

Employee satisfaction with recognition practices

Recognition rate of the employment brand by critical workforce segments

Number of lateral moves within a business unit

Number transfers between business units

Time to fill positions with internal transfer

Share positions filled with internal candidates

Number of recognition awards granted

Voluntary turnover rate (by department, level, workforce segment)

Retention of high performers

Retention of critical segments

Leadership stability rate

Accession rate

Percentage of referral hiring

25. Align HR Services Deloitte HR Strategy Framework

Define Value

Understand business strategy

Define HR strategy

Identify HRs primary performance levers

Deliver Value 7. Establish a delivery model for HR services 8. Upgrade the companys HR capabilities 9. Continuously improve HR operations 10. Communicate the value of HR services Define Value

Align HR Services

Assess HRFunction

Design HR services

26. Assessing your HR Function Defining the Value of HR 27. HR Maturity Assessment

We have developed an HR Maturity Model to meet this objective.

The HR Maturity Model captures our views on leading practices for talent management, as well as for each of the key elements of our HR service delivery model:HR strategy, HR customers, HR roles, and HR enables.

28. Deloitte Global HR Maturity Tool Dimensions Talent Maturity HR Strategy & Service Delivery Maturity

Talent Strategy & Plan

Talent Metrics

Talent Geographic Reach & Diversity

Attraction

Development

Retention

Work Environment

Innovation

Employer Brand & EVP

Talent Governance & Leadership

Talent Infrastructure

Talent Attitudes & Culture

HR Strategy Alignment

Business Strategy Impact

HR & Talent Strategy Alignment

Business Alignment

Customer Segmentation

HRs Role in Key Talent Decisions

HR Planning Effectiveness

HR Metrics

HR Capability

HR Enablers(e.g. Policy, Process, Governance, Reporting & Technology)

HR Credibility

HR Customer Segmentation

• Employees

• Managers

• Executives

• Non-Employees

• Applicants

• Retirees

HR Service Delivery Roles

Business Partner

CoE

SSC

Outsourcer

Vendor Manager

HR Service Delivery Enablers

Processes

Procedures, & Compliance

Integrated Technologies

HR Portal & Self-Service

Reporting & Analytics

Governance, Service-Level Agreements (SLAs) & Metrics

29. Talent Maturity Model 30. HR Strategy Alignment Maturity Model 31. HR Customer Segmentation Maturity Model 32. HR Roles Maturity Model 33. HR Enablers Maturity Model 34. Deliver Value Deloitte HR Strategy Framework

Define Value

Understand business strategy

Define HR strategy

Identify HRs primary performance levers

Deliver Value 7. Establish a delivery model for HR services 8. Upgrade the companys HR capabilities 10. Communicate the value of HR services Define Value

Align HR Services

Segment stakeholders

Prioritise HR investments

35. Establish and Re-assess HR Service Delivery Model Defining the Value of HR 36. Service Delivery Models - Leading Practices The Evolution of HR Service Delivery Deloitte HR Service Delivery FrameworkEnsure HR service delivery model is aligned to deliver effectively on Business & HR Strategies. Review Customers to determine if unique HR requirements exist for different customer segments. Assess how effectively service is being delivered through retained and outsourced HR Roles Evaluate the effectiveness of Enablers that HR can leverage to deliver efficient and effective service. Traditional Ulrich model was used to describe the high level, basic relationships and players in the transformed HR organization, showing how the three building blocks of Shared Services Operations, Business Partners and Centres of Excellence interacted with managers and employees. HR Service Delivery Framework (mid-90s) 37. The building blocks that make up the four key roles in the operating model are Group HR, CoEs, SSC and Business Partners

Represents HR at the Exco level.

Group HR is the business partner to the Exco.

Sets the tone and pace of the HR strategy, in line with the Group business strategy.

Owns the maintenance of the strategic framework for the CoEs to develop the HR policy blueprint.

Responsible for managing succession planning and HR issues for Exco -2.

Group HR Centres of Expertise

Designs and develops deep technical capability in areas of HR that drive strategic agenda.

Innovates, designs and develops HR strategies, policies and processes in line with latest industry thinking.

Provides expert guidance to HRBPs and senior executives in the SBUs/Divisions.

Resolves complex issues escalated from the Shared Service Centre and HRBPs.

Shared Services

Provides standardised, consistent, accurate, fit for purpose transactional and functional expertise to HR, delivering high quality, efficient administration for all HR transactions.

Customer-focused contact centres providing the first point of call for employees and managers for advice, guidance and query resolution.

Responsible for continuous improvement of delivery of HR processes and technology utilisation by HR.

Business Partners

Drives the strategic people issues, aligning group and SBU/Divisional HR strategies.

Provides SBU/division with local geographical input for Group policy blueprint development.

Acts as a business consultant maximising the value talent brings to the SBU.

Manages SBU/country-specific HR issues but does not perform local transactions.

Provides input to the prioritisation of HR-owned business projects, providing subject matter expertise to HR projects and acting as the change management agent.

Service Delivery Models - Leading Practices The Four Building Blocks 38. Service Delivery Models - Leading Practices Service Provision Group HR Centre of Expertise Shared Services Business Partners

Group HR

Owns the skills development, succession planning and career planning of HR professionals

Group HR provides the CoE with the framework for developing HR policies that enable the execution of the corporate HR strategy

Provides the cohesiveness for the CoE teams to work together to deliver the strategy in an aligned way

Group HR ensures the HR service delivery model operates effectively, ensuring clarity of roles and responsibilities in the delivery of all HR services

Provides BPs with a framework for the consistent execution of the BP role, within the dynamics of different SBU/Divisional cultures and environments

Owns succession planning working with BPs who manage the talent pipeline

Centre of Expertise

Internal Consultants to the business

The CoE provides expert input into the development of the corporate HR strategy by Group HR

The CoE owns the end-to-end processes for HR delivery, integration between processes and provides guidance to the SSC for continuous improvement in HR process delivery

Resolvescomplex issues escalated from the SSC

The CoE provides strategic consulting support to the BPs, advising on complex and strategic people-management issues and provide guidance on the use of HR policies and tools to meet the businesss needs

Shared Services Delivers high quality and efficient HR services to managers and employees, maximising self-service and emulating the brand in the way it delivers customer services

SSC provides the appropriate HR services support requested by Group HR, for example administration of HR issues

The SSC operationalises strategies and policies developed by the CoE, operating efficient high quality processes and providing front line support to managers and employees

SSC delivers high quality and efficient HR processes to the SBU to agreed SLAs, liaising with Business Partners to ensure customer satisfaction

Manages queries form managers and employees

Business Partners The face of HR to the business

BPs provide input to Group HR on the current and future needs of the business from HR, along with direct and indirect feedback on customer satisfaction with HR service delivery

BPs provide guidance to CoEs on the strategic direction and priorities of the business including future needs

BPs act as a conduit between the business and CoEs translating business priorities and needs

BPs act as a conduit between the business and SSC, interpreting customer needs and feedback from the coal face, managing the performance expectations of the business and SSC

Resolves complex queries escalated from the SSC

This matrix summarises the relationship each team within the model has with the other HR teams, and some of the key responsibilities. P R O V I D E SS E R V I C E ST O R E C I P I E N TO FS E R V I C E SF R O M 39. Service Delivery Models - Leading Practices The Business Partner Role Assumptions / Attributes Business Partners Role Business Partners do:

Work with Business Unit to translate business needs into HR requirements and working environment

Identify the organizational capabilities required to execute the business strategy

Acts as a consultant most frequently on issues related to strategy execution and change, talent management, employee engagement, performance management, employee relations

Responsible for implementing initiatives at the business unit level and may support the design of specialized or customized training, communications, and recruiting

Broker of services between specialized internal groups (e.g. Total Rewards) and the business

Collaborate with Centers of Expertise to create innovative HR solutions

Provide feedback to Centers of Expertise about HR solution effectiveness

Support culture change taking direction from the business leadership

Develop the leadership and manage the talent pipeline in the Business Unit

Analyze and investigate business / people issues and trends within the bank

Deliver HR services in line with business needs

Focus on consultative support and HR solution deliveryto senior line management

Challenge the business in order to ensure aligned and integrated people strategy, and fair people management

Support all HR products and services, including any required changes and ensures client complies

Coach line managers in people management

Ensure effective execution of HR policies and processes in their business

Ensure compliance with local legislation and regulatory requirements

Interact with the Workers Council on individual issues

Business Partners Attributes Business Partners dont:

Client relationship management

People strategy development

Contracting/stakeholder management Influencing

Business acumen

Consulting

Resource management

Policy implementation/ communication

Negotiation

Conflict resolution

Change management

Marketing

Business planning

Program Management

Analytical skills (Interpret reporting)

Support line managers and employees in day-to-day administration

Execute design and development of HR programs, procedures or policies

Manage employee data

Report on workforce-related data

Resolve individual EE queries; have non-managerial employees as clients

Undertake people management responsibilities on behalf of line managers

Interact with the Workers Council on group issues

Capabilities

Facilitating organization change

Business acumen

Client service delivery

Organizational design

Consulting

Personal and professional impact

Coaching and influencing

40. Service Delivery Models - Leading Practices The CoEs Role Assumptions / Attributes CoEs Role CoEs do:

Provide expert solutions and services to the Business Units, across the whole of the enterprise

Customers of the CoEs are typically the BP. May also be contacted by the business and / or contact the business themselves

Keep appraised of leading practices, monitor and evaluate future legislation and market trends in their areas of specialty

Align the innovation agenda with the needs and directions of the SBUs/divisions

Develop and deploy innovative HR policies, products and processes and create strategy, policy, programs, and tools for local implementation

Align policies and solutions across the enterprise as appropriate

Collaborate with each other to deliver comprehensive solutions to the Business Partners

Monitor solutions, vendors, SSC processing, and employee feedback to drive continual improvement

Act as the final escalation point for advice on customer queries, transactions and requests that the SSC cannot resolve

Lead the development of product strategy

Partner BPs in consulting with the business to create innovative solutions when standardized products are not sufficient

Provide subject matter expertise, advice and guidance to BPs and HRS

Support functional specialists in the resolution of complex technical queries and the delivery of streamlined products and services

Research and develop / source best solutions and new concepts with respect to people management, products and services

Coordinate and work with results of internal and external benchmarking to create and share pools of best practice

Design organizational metrics for CoE products and interventions when weaknesses are detected

Partner with HRS when developing new products to ensure effective deliverability

Communicate product changes and updates to BP and HRS

CoEs Attributes CoEs dont:

Subject matter expertise

Content strategy development

Solution design

Policy development

Innovation

Advisory

Consulting

Contracting /stakeholder management

Matrix management

Market intelligence/ best practice (push)

Business understanding at Organisational, Regional, Divisional level

Metric definition e.g. org effectiveness and product impact

Analytical skills (Interpret reporting)

Quality and risk management

Undertake operational administrative processing

Manage and administer data

Manage and perform any operational transactions

Consult in systems and administrative process design and development

Manage services vendors

Interact with employees on day-to-day matters

Get involved in the execution of HR policies

Capabilities

Facilitating change

Innovation

Personal and professional impact

Business acumen

Thought leadership

Consulting skills

Client focus

41. Service Delivery Models - Leading Practices The Shared Services Role Assumptions / Attributes Shared Services Role Shared Services do:

Provide administrative support for the rest of HR, including:

Manage and process HR transactions (e.g., pay changes, performance management) and provide any retained administrative/ transactional process support

Produce outputs (e.g., standard letters, changes in terms/conditions)

Maintain employee data

Serve as single point of contact for HR queries and requests (when questions can not be answered through self-service)

Resolve queries and requests and escalating to other HR areas as appropriate

Liaise with HR Business Partners and Centers of Expertise to achieve resolution of customers queries and requests

Have performance management processes, metrics and vendor management to ensure continuous improvement

Control operational cost and quality

Are governed by service level agreements that meet the needs of the Business Units

Use technology to support customer contact

Provide first point of contact for the provision of employee and manager advice, guidance and query resolution

Significantly reduce HRBP and CoEinvolvement in routine administrative tasks and inquiries

Provide answers to basic and more complex inquiries

Focus on solution delivery and execution

Perform organizational and data analytics and quality management

Support problem solving, case management and issue resolution

Deliver commoditized products and standardized services

Deliver and maintain self service offerings

Monitor HR compliance

Have specialist expertise e.g. Payroll, training

Have responsibility for implementing necessary changes process changes in partnership with global process owner

Process HR transactions

Shared Services Attributes Shared Services dont:

Customer service

Transactional processing

Policy measurement/ metrics tracking

Reporting e.g. provision of reports

Technology efficiency improvement

Process efficiency

Cost effectiveness

Management of consistent delivery of services

Vendor management

Query resolution

Analytical skills (KPIs)

Contracting /stakeholder management

Work with managers in solving business challenges

Allow deviation from agreed standard processes and procedures

42. Key steps in delivering value through HR

• Continuously improve HR operations

• • Implement robust systems and leading practices to deliver HR services

• • Establish appropriate service levels and performance targets

• • Maintain a competitive cost structure relative to industry benchmarks

• • Implement Lean Sigma or other continuous improvement methods to help improve operational excellence

• Communicate the value of HR services

• • Understand the value of HR services

• • Develop execution plans for specific constituencies

• • Implement an integrated communication process and obtain feedback

• • Create an innovative brand statement and/or logo that helps reinforce the HR value proposition

43. Conclusion Defining the Value of HR 44. Conclusion

• Understand the Business

• Define your Strategy

• Build Measures

• Assess Current

• Re-evaluate how HR is Delivered

• Communicate