The Government is introducing a subsidy program to support employees and businesses. The JobKeeper Payment is designed to help businesses affected by the Coronavirus to cover the costs of their employees’ wages, so that more employees can retain their job and continue to earn an income.
Keeping Australians in work and businesses in business will lay the foundations for a stronger economic recovery once the Coronavirus crisis passes.
JOBKEEPER PAYMENT
Summary
Under the JobKeeper Payment, businesses significantly impacted by the Coronavirus outbreak will be able to access a subsidy from the Government to continue paying their employees. This assistance will help businesses to keep people in their jobs and re-start when the crisis is over. For employees, this means they can keep their job and earn an income – even if their hours have been cut.
The JobKeeper Payment is a temporary scheme open to businesses impacted by the Coronavirus. The JobKeeper Payment will also be available to the self-employed.
The Government will provide $1,500 per fortnight per employee for up to 6 months.
Eligibility
Employers (including non-for-profits) will be eligible for the subsidy if:
their business has a turnover of less than $1 billion and their turnover will be reduced by more than 30 per cent relative to a comparable period a year ago (of at least a month); or
their business has a turnover of $1 billion or more and their turnover will be reduced by more than 50 per cent relative to a comparable period a year ago (of at least a month); and
the business is not subject to the Major Bank Levy.
Employers must elect to participate in the scheme. They will need to make an application to the Australian Taxation Office (ATO) and provide supporting information demonstrating a downturn in their business. In addition, employers must report the number of eligible employees employed by the business on a monthly basis.
Eligible employers will receive the payment for each eligible employee that was on their books on 1 March 2020 and continues to be engaged by that employer – including full-time, part-time, long-term casuals and stood down employees. Casual employees eligible for the JobKeeper Payment are those
employees who have been with their employer on a regular basis for at least the previous 12 months as at 1 March 2020. To be eligible, an employee must be an Australian citizen, the holder of a permanent visa, a Protected Special Category Visa Holder, a non-protected Special Category Visa Holder who has been residing continually in Australia for 10 years or more, or a Special Category (Subclass 444) Visa Holder.
Eligible employers who have stood down their employees before the commencement of this scheme will be able to participate. Employees that are re-engaged by a business that was their employer on 1 March 2020 will also be eligible.
In circumstances where an employee is accessing support though Services Australia because they have been stood down or had their hours reduced and the employer will be eligible for the JobKeeper Payment, the employee will need to advise Services Australia of their new income.
Self-employed individuals will be eligible to receive the JobKeeper Payment where they have suffered or expect to suffer a 30 per cent decline in turnover relative to a comparable prior period (of at least a month).
Where employees have multiple employers – only one employer will be eligible to receive the payment. The employee will need to notify their primary employer to claim the JobSeeker Payment on their behalf. The claiming of the tax free threshold will in most cases be sufficient notification that an employer is the employee’s primary employer.
Payment process
Eligible employers will be paid $1,500 per fortnight per eligible employee. Eligible employees will receive, at a minimum, $1,500 per fortnight, before tax, and employers are able to top-up the payment.
Where employers participate in the scheme, their employees will receive this payment as follows.
If an employee ordinarily receives $1,500 or more in income per fortnight before tax, they will continue to receive their regular income according to their prevailing workplace arrangements. The JobKeeper Payment will assist their employer to continue operating by subsidising all or part of the income of their employee(s).
If an employee ordinarily receives less than $1,500 in income per fortnight before tax, their employer must pay their employee, at a minimum, $1,500 per fortnight, before tax.
If an employee has been stood down, their employer must pay their employee, at a minimum, $1,500 per fortnight, before tax.
If an employee was employed on 1 March 2020, subsequently ceased employment with their employer, and then has been re-engaged by the same eligible employer, the employee will receive, at a minimum, $1,500 per fortnight, before tax.
It will be up to the employer if they want to pay superannuation on any additional wage paid because of the JobKeeper Payment.
Payments will be made to the employer monthly in arrears by the ATO.
Timing
The subsidy will start on 30 March 2020, with the first payments to be received by employers in the first week of May. Businesses will be able to register their interest in participating in the Payment from 30 March 2020 on the ATO website.
Integrated business planning – How to successfully use it !
The adoption of integrated business planning (IBP) over the last ten years has allowed organisations to develop an agile approach to planning and execution in an increasingly challenging external environment. It has also demonstrated its value in enabling the finance function to deliver excellence in its emerging role as a business partner across the organisation.
Whilst the deployment of IBP represents a significant organisational change, considerable insight on the key success factors for the execution of IBP has now been accumulated. This deployment learning is crucial when planning the adoption of IBP, and, as outlined below, the finance function plays a key role in this.
IBP as presented in this article is not integrated thinking or integrated reporting, as they might be used in developing an integrated report using the International Integrated Reporting Council’s Integrated Reporting Framework. The use of the terms “sustainable” and “sustainability” in the context of this article refer to adoption of an IBP approach as outlined in the article and not the adoption of a multi-capital approach to sustainable management.
IBP is a specific process for using specific business goals to develop precise financial and operational resource requirements with the goal of minimising risk and maximising either cash flow or profit. As presented in this article, IBP is an operational planning system with origins in supply chain planning systems. Sustainable growth in IBP refers to the maximum rate of growth that a company can support without taking on new financing, and not to broader environmental, social, and governance factors that are taken into account in a broader definition of sustainability.
Deployment insights
The graphic “Key Success Factors for IBP Deployment” summarises four points for effective adoption of IBP based on deployment experiences over a wide range of industry sectors.
Key success factors for IBP deployment
Source: Camelot Management Consultants.
Historically, due to its evolution from sales and operations planning (S&OP), IBP has often been seen as a supply-chain-centred process. However, experience shows that the enterprise-wide benefits of the process are not achieved or sustained when deployment is approached in this way.
A key feature of IBP deployment is the creation of genuine cross-functional collaboration to deliver enterprise goals as reflected in the key success factors:
Cross-functional C-suite sponsorship:IBP entails significant change not only in processes and systems but also in mindsets and behaviours across the business. For this reason, strong senior leadership sponsorship is critical. Furthermore, the cross-functional and interdependent nature of IBP has been shown to be more successfully deployed when the collaborative character of the process is reflected in the C-suite’s sponsorship of the programme. In particular, joint sponsorship by the key functional leaders (finance, commercial operations, and supply chain) has proved very powerful in role-modelling the teamworking that underpins effective IBP.
Senior enterprise leadership:Ideally, IBP deployment should be led by a senior manager with either a commercial or financial background and strong cross-functional awareness and connections. This differs from the traditional handling of IBP (and S&OP), as outlined above, where supply chain leaders have often been tasked with deployment. This senior enterprise leadership provides the credibility and commercial acumen to lead change across the various parts of the business.
Building cross-functional teams:Most organisations are not set up, either structurally or culturally, to excel in cross-functional working. It is therefore essential to invest time to support the development of the cross-functional teams that are at the core of creating value through IBP. This goes beyond basic team building to include, for example, the development of team-based reward-and-recognition approaches and cross-functional metrics and goals.
Coaching and mentoring:In common with many organisational changes, IBP deployment has often focused on the process and system aspects (which are undoubtedly important). However, applying new cross-functional leadership practices and executing a new corporate process requires hands-on support, especially for managers working in IBP for the first time. Coaching and mentoring have been shown to be very effective approaches for rapidly building new capability and driving quick wins from the process.
In addition to these broad deployment learnings, it is also clear that the finance function has a critical role in ensuring successful and sustainable deployment of IBP in four key areas:
CFO sponsorship
As one of the key C-suite sponsors, the CFO has a very significant role in the sponsorship of IBP adoption. IBP leads to a major change in the philosophy and execution of business planning (typically a key part of the CFO remit), from major annual or biannual activities to a rolling monthly financial planning cycle. This change has far-reaching effects across functions and, hence, the road map for change and its organisational benefits must be strongly owned and promoted by the CFO.
An important part of this sponsorship role is working directly with C-suite peers to maintain a disciplined adherence to the IBP process, especially in the early stages of deployment. IBP sets out a clear and structured approach for performance review, empowered decision-making, and forward planning. This approach can often challenge existing ways of working amongst senior leaders who over time have built personal networks and practices that allow them to access business data and make decisions, often from a siloed perspective.
A key role of the CFO is therefore to model the behaviours of the senior leader within IBP, supporting and leveraging delegated responsibilities in the IBP cycle and not overriding decisions outside the designated process.
CFO sponsorship of IBP is also critical across the finance function itself. The IBP approach shifts current practices in business and financial planning and creates new and increased expectations for finance staff to operate as business partners with a broader influence beyond the traditional accounting role.
The role of the finance partner in IBP is vital (as described further below), and, hence, the CFO must engage and inspire the team to respond to this opportunity. Whilst extending the expectations of the finance staff beyond the core of traditional accounting to a broader business role is exciting for many, it also presents challenges.
Leading this functional shift as part of IBP deployment is a key role for the CFO to ensure that high-quality finance support is present throughout the various cross-functional IBP teams and when decisions are made.
Cross-functional partnerships and influence
Finance leaders play a key role on the newly formed IBP teams to build the connection between commercial and supply chain teams. Traditionally, these teams have often not established an open and trusting partnership, with the supply chain team often seen as a back-office or “arms-length” provider to the commercial organisation. However, the finance team is typically experienced at working across teams in the process of aligning and reconciling financial plans.
This experience, and the trust built with these teams, enables finance to play a critical role in focusing the cross-functional IBP teams on enterprise outcomes and metrics. Over time, trust and collaboration is built through the positive experience of executing IBP, but finance is often a key catalyst to accelerate this.
A key foundation for enterprise-optimised decision-making in IBP is rigour and transparency to create a common, cross-silo view of business performance and outlook. This is a crucial role for finance, leveraging its traditional strengths in management accounting and financial stewardship.
An important feature of IBP is the application of standard data sources, definitions, and metrics (typically supported by the business ERP system). This consistent foundation for situation analysis and decision-making is essential in aligning cross-functional perspectives and creating transparency for decision-makers. This can often be problematic in the early stages of IBP adoption, where there can be considerable resistance to letting go of silo-based data or interpretations.
Here finance has a key responsibility to help educate cross-functional partners on the new data sets and metrics and their importance in supporting decision-making optimised at the enterprise (rather than the silo) level. Finance members of IBP teams often also take on a “champion” role to ensure adherence to this new approach in the monthly IBP meetings, and this has been shown to both improve the quality of individual IBP team outputs, but also the overall flow and decision-making efficiency of the overall IBP cycle.
Investing in new skills for finance
Given both the key role of finance in deploying IBP, and the degree of change in the finance team to deliver this, it is vital that the function invests to build the capabilities required.
Key finance capabilities for IBP
Source: Camelot Management Consultants.
This capability development can be categorised into three themes, as shown in the graphic “Key Finance Capabilities for IBP”:
Cross-functional leadership: Finance leaders have an important role in supporting the integration of the new cross-functional teams that are central to IBP and in enabling strong, coherent team outputs. Capability development should include the rational, task-focused aspects of building cross-functional teams, such as aligning around common goals, agreeing roles and responsibilities, and defining team metrics. However, it is important that this is complemented by capability building in softer topics such as an understanding of team dynamics, personality types, generational differences, and communication styles, and how to translate this understanding into effective team leadership.
Business acumen: The finance role in IBP demands a broad judgement of business issues to understand and influence responses to risks and opportunities. A common element of this role is also the development of scenario plans and advocating the optimal business response. It is important that finance staff members are able to leverage strong analytical inputs with business credibility. This can be developed, for example, through job rotations across functions and with coaching/mentoring support within finance.
Advising and influencing business leaders:IBP delegates decision-making throughout the various cross-functional teams. This requires that the decision-maker in each case is briefed in order to ensure that rational, enterprise-optimised decisions can be made. Finance has a key role to play in this, and this often creates a need for relatively junior finance staff to build their capability and confidence in advising and influencing the relevant business leader. Developing skills in presenting, influencing, and negotiating are therefore key for finance staff as increasing demands are made by IBP.
New mindsets and behaviours for finance
Expanding finance’s traditional skill base can be a key mindset change for the finance function, which requires clear direction and sponsorship from the CFO, as well as engagement and support from all functional leaders.
A further success factor for finance staff working in IBP is the ability to balance the need for championing financial rigour whilst adopting a dynamic and agile approach to driving the business.
The rolling monthly cycle requires a major mindset change from traditional (typically annual or biannual) financial planning processes. Monthly IBP discussions focus on changes, outliers, and closing performance gaps; and a key strength of the process is the ability to dynamically create robust updates to the business and financial outlook. This discipline brings finance closer to the operational edge of the business and is a key asset in ensuring the resilience and relevance of the business plan and associated financials. The capacity of finance to adapt to this new way of working is a key success factor in IBP, providing a competitive advantage in a volatile and complex market environment.
Companies that fail exceptionally have the potential for greatness.
Finance is complex, and whenever you have complication and uncertainty, it is a given that things will go wrong at some point. When they do, the best way to deal with those mistakes is to use them to learn and grow. And the only way an organisation can be aware of issues while they’re still small-scale is to create an environment in which employees and managers at all levels feel safe voicing their concerns and thoughts.
“The reality is human beings will make mistakes,” said Amy C. Edmondson, Novartis professor of leadership and management at Harvard Business School and author of The Fearless Organization: Creating Psychological Safety in the Workplace for Learning, Innovation, and Growth. “When we’re in novel settings, beyond just mistakes, we’ll also have failures that aren’t, strictly speaking, mistakes because no one’s ever been in that situation before. The most important thing is that you hear about what went wrong in a timely way because that’s how you can jump on it and avoid larger-scale problems.”
Companies that foster a culture of blameless problem-solving have the potential to learn from what goes wrong, and also to innovate, through smart experimentation, while companies that habitually blame individuals are in danger of running into large-scale disasters without a hint of impending doom, according to Edmondson.
Here are some tips for creating a workplace environment in which people feel they can speak up about what’s happening and collectively work hard to improve and avoid big problems:
Promote smart experimentation. Experimentation is how companies innovate and develop tomorrow’s new offerings, but you want to make sure that the experimentation strategy is a smart one. Organisations should never experiment on a grand scale in uncertain domains. Experiments need to be big enough to get valid data about their viability, but not so big that the potential failure will be devastating to the business.
“For organisations to create a culture that doesn’t blame or punish mistakes, they must embrace entrepreneurship culture,” said Ebrima Sawaneh, a Lagos-based accountant and finance blogger. “Every employee should be trained and empowered to innovate solutions without fear of being punished if they make genuine mistakes. Employees should be encouraged to report any mistake, and organisations have to clearly set what is acceptable and create a line of sight.”
Once you have a clear experiment strategy of an appropriate scale, you must make sure that everyone’s expectations are aligned.
“Everyone (high and low) must know that this is an experiment, and the nature of an experiment is we don’t yet know what will happen,” Edmondson said. “Make sure everyone is aware of the fact that this may or may not work, and in both cases, what happens will provide great data.”
Invite input. Leaders need to make it clear to people that their voice is not only expected but also welcomed.
“A lot of times, especially when they are nervous that there might be layoffs, people have the tendency to hold back,” Edmondson said. “There’s an implicit belief that no one ever got fired for silence. I think the job of leaders is to flip that around. In the complex, uncertain industry in which we operate, the people that we’re not hearing from are not of much value.”
Because the tendency for employees is to remain silent about issues, leaders need to be proactive in inviting input. It’s one thing to say, “I’d love to hear from all of you,” but it’s another to turn to a specific employee and ask, “What do you think of this situation? I’d love your thoughts.”
“After painting the situation we find ourselves in in such a way that it becomes clear that voice is necessary, leaders must be proactive in asking ‘What are you seeing out there? Is there anything not going well? What are you excited about?’” Edmondson said.
Foster psychological safety. In her latest book, Edmondson discusses why it matters for company performance that people feel psychologically safe to speak up and what leaders can do to help bring it about.
“I don’t mean to say we have to get rid of all fear,” Edmondson said. “I think it’s fine to be afraid of missing a deadline or afraid of the competition. It’s not fine to be afraid of one another or the boss.”
Edmondson explained that while managers have an outsized influence on the climate at work, any employee can make a more psychologically safe space for colleagues simply by showing up with a spirit of openness, asking questions, and truly listening.
“When you listen thoughtfully to a colleague or a subordinate, you are making a difference. You are making work life that much more safe and enriching,” she said. “In addition to asking questions, when you say things to colleagues, subordinates, or managers such as ‘I made a mistake’ or ‘That didn’t work out the way I thought,’ it sets a shining example of a learning orientation. If you model a learning orientation and interest in others, you will make that small difference, in your vicinity, in helping create a learning organisation.”
Sawaneh agrees that fostering psychological safety can help create a high-performing financial organisation.
“When people fear that they will be blamed for mistakes, it can affect their active participation and sometimes result in their being too careful,” he said. “The key resource of accounting firms are their people, and when individuals are less concerned about mistakes, they will be willing to delegate, create a learning culture, become team players, and embrace change.”
Avoid stretched goals and closed ears. While there are several examples of organisations doing a good job of creating a culture of blameless problem-solving, there are also examples of companies that have faced the consequences of squelching safe and open communication.
Wells Fargo’s recent failure, in which millions of accounts were created without consumers’ consent, is one such example. According to Edmondson, the bank’s initial cross-selling strategy wasn’t fully in touch with the reality of customers’ limited wallets, which created immense pressure to have more and more products per customer, leading employees to activities that became fraudulent and problematic in other ways. Had employees felt able to speak up, push back, and say what they were learning, the strategy might have been tweaked.
“A recipe for failure is stretch goals and closed ears,” Edmondson said. “When managers, getting the messages from on high, are saying, ‘You better deliver on this,’ the implied rest of that sentence is, or else. People will deliver, at least on the illusion of creating the desired results, so then what you will often see is the illusion of good performance rather than good performance itself.”
Develop a productive response to bad news. Psychological safety in the workplace can be shattered the second a boss erupts in anger over a reported failure.
“Leaders need to train themselves not to overreact emotionally to bad news,” Edmondson said. “They need to pause, breathe, and disrupt what might be the natural, instantaneous reaction of emotion or disapproval, and say, ‘Thank you for that clear line of sight. Now what should we do next? What are your ideas? Here are my ideas.’ It’s what I call a productive response to bad news, as opposed to a natural, in many ways normal, response to bad news.”
Employers seek loyalty and dedication from their employees
but sometimes fail to return their half of the equation, leaving millennial
workers feeling left behind and unsupported. Professional relationships are
built on trust and commitment, and working for a boss that supports you is
vital to professional and company success.
Employees
who believe their company cares for them perform better. What value does an
employer place on you as an employee? Are you there to get the job done and go
home? Are you paid fairly, well-trained and confident in your job security? Do
you work under good job conditions? Do you receive constructive feedback, or do
you feel demeaned or invisible?
When
millennial employees feel supported by their boss, their happiness on the job
soars — and so does company success. Building a healthy relationship involves
the efforts of both parties — boss and employee — and the result not only
improves company success, but also the quality of policies, feedback and work
culture.
Investing
In A Relationship With Your Boss
When
you’re first hired, you should get to know your company’s culture and closely
watch your boss as you learn the ropes. It’s best to clarify any questions you
have instead of going rogue on a project and ending up with a failed proposal
for a valuable client.
Regardless
of your boss’s communication style, speaking up on timely matters before
consequences are out of your control builds trust and establishes healthy
communication. Getting to know your boss begins with knowing how they move
through the business day, including their moods, how they prefer to communicate
and their style of leadership:
Mood: Perhaps your boss needs their cup of coffee to
start the day. If you see other employees scurry away before the boss drains
that cup of coffee, bide your time, too.
Communication: The boss’s communication style is also influenced
by their mood. Don’t wait too late to break important news. In-depth topics may
be scheduled for a meeting through a phone call or email to check in and show
you respect your boss’s time. In return, your time will be respected, too.
Some
professionals are more emotionally reinforcing that others. Some might appear cold, but
in reality, prefer to use hard data to solidify the endpoint as
an analytical style. If you’re more focused on interpersonal relationships,
that’s your strength, but you must also learn and respect your boss’s
communication style.
Leadership: What kind of leader is the boss? Various
communication styles best fit an organization depending on its goals and
culture, but provide both advantages and disadvantages. Autocratic
leaders assume total authority on decision-making without input
or challenge from others. Participative leaders value the democratic input of
team members, but final decisions remain with the boss.
Autocratic
leaders may be best equipped to handle emergency decisions over participative
leaders, depending on the situation and information received.
While
the boss wields a position of power over employees, it’s important that leaders
don’t hold that over their employees’ heads. In the case of dissatisfaction at
work, millennial employees don’t carry the sole blame. Respect is mutually
earned, and ultimately a healthy relationship between leaders and employees
betters the company and the budding careers of millennials.
A Healthy Relationship With Leaders Betters The Company
A
Gallup report reveals that millennial career happiness is down while
disengagement at work climbs — 71% of
millennials aren’t engaged on the job and half of all employed
plan on leaving within a year. What is the cause? Bosses carry the
responsibility for 70% of employee engagement variances. Meanwhile, engaged
bosses are 59% more prone to having and retaining engaged employees.
The
supportive behaviors of these managers to engage their employees included being
accessible for discussion, motivating by strengths over weaknesses and helping
to set goals. According to the Gallup report, the primary determiner of
employee retention and engagement are those in leadership positions. The boss
is poised to affect employee happiness, satisfaction, productivity and
performance directly.
The
same report reveals that only 21% of millennial employees meet weekly with
their boss and 17% receive meaningful feedback. The most positive engagement
booster was in managers who focused on employee strengths. In the end, one out
of every two employees will leave a job to get away from their boss when
unsupported.
Millennials
are taking the workforce by storm — one-third of
those employed are millennials, and soon those numbers will take the
lead. Millennials are important to companies as technology continues to shift
and grow, and they are passionate about offering their talents to their
employers. It’s vital that millennials have access to bosses who offer support
and engage their staff through meaningful feedback, accessibility and help with
goal-setting.
In
return, millennial happiness and job satisfaction soar, positively impacting
productivity, performance, policy and work culture. A healthy relationship
between boss and employee is vital to company success and the growth of
millennial careers as the workforce continues to age. Bosses shouldn’t be the
reason that millennial employees leave. They should be the reason millennials
stay and thrive in the workplace, pushing it toward greater success.
How managers can develop the ability and confidence to ask the right questions, spot patterns, and process that information in parallel with an understanding of the wider business situation.
At the heart of good decision making in today’s fast and complex environment is the ability to see how things fit together—and perhaps more crucially, spot when things do not have a good or logical fit—quickly and effectively, and leverage these connections to derive insights and make prompt data-driven decisions.
Together with my colleagues, Chris Frank, a senior executive at American Express, and Paul Magnone, at Google’s cloud platform, (see also Chris and Paul’s book, Drinking from the Firehose) we have noticed that managers and executives are often fearful of relying on quantitative data in making business decisions. There seems to be a misconception that in order to be able to effectively make data-driven decisions, you have to be a ‘quant’ or a ‘math wiz’. We believe that this misconception generates a lot of unnecessary stress and, more importantly, a lot of good business decisions are not being taken.
What sets apart better leaders is the ability to see the same data as others (and everyone sees lots of similar data these days) but make some different conclusions and derive different insights from it. The key to doing so is to learn to quickly and effectively synthesize, rather than merely summarize, the information presented. We believe and show that this does not require you to be able to solve logarithms or square roots in your head, but rather develop the ability and confidence to ask the right questions, spot patterns, and process that information in parallel with your understanding of the wider business situation.
To help managers build these skills, we have developed a concept, a framework, and a set of tools which we term Quantitative IntuitionTM. Formally, we define this as the ability to make decisions with incomplete information via precision questioning and business acumen driven by pattern recognition. This requires a parallel view of the issues that matter rather than just a logical sequence of thoughts to see the situation as a whole.
Asking the Right Questions
One of the key elements to acquiring this acumen lies in ‘precision questioning’. This is the element that we see as being least prevalent in data analysis and where the real work needs to be sweated to achieve improved performance. In today’s world, the smartest person in the room is no longer the person who has the answers, but the one who asks the right questions to get the desired outcomes. With data drowning us on all sides, the usual “Can we look at the data and see what it tells us?” is likely to lead to a long journey with little results and insights.
We offer some techniques to approach data differently, beginning with IWIK, a method from Paul and Chris’s book, which stands for what is it that “I wish I knew.” We found that starting a group meeting around data-driven decision making with this deceptively simple question is extremely effective in quickly directing the data-driven discussion on the important issues and honing in on the fundamental issue that needs to be answered. It also has the benefit of often unearthing the data required as having already been acquired and being used elsewhere, when group members say “hey, we have that already, we got it when we…”.
Driving Backwards to Move Forward
A second approach is backward data-driven decision making, where you start the data-driven journey with the decision you would be making and then extrapolate backwards to see what analysis and data you would have needed to be able to make the decision. This approach requires the manager to put in a lot of thought and energy at the outset of the data-driven process to determine what the proposed decision and analyses might be. Executives are often reluctant to spend so much time early on in the process, thinking about the problem, decision and analyses to be done, but it is a well spent effort as it almost guarantees that the data-driven process will result in actionable outcomes.
In order for Quantitative Intuition to become second nature—that is, intuitive—a series of learning steps need to be climbed. Initially, we do not know what we do not know, we are ‘unconsciously incompetent. We then become aware of what we do not know and become ‘consciously incompetent’. We can then learn it, so we become ‘consciously competent’. And finally, we use it so often that we cease to be aware of using it consciously, becoming ‘unconsciously competent’. This is the stage of intuition that we strive for in our Quantitative Intuition program.
This is one of a series of articles published in a new eBook from Columbia Business School.
What will the year ahead bring for you and your business?
What developments will we see in the business landscape over the next 12 months? We asked some of our faculty to look ahead and, well, there’s good news and bad… On the plus side: exciting new opportunities to do things differently and get results. Better stop reading now, though, if you’re hoping for quick fixes.
1. Companies will own less Tammy Erickson, Adjunct Professor of Organisational Behaviour
2019 will be the year in which we’ll begin to see companies step up to the “own less” reality: identifying resources (functions, facilities, people) it makes sense to “own” and embracing a variety of flexible arrangements for others (rent, contract, share).
Notice the rapid growth of companies that rent ever-changing wardrobes, allowing customers to have exactly the clothing they need for this week’s activities. Or the number of teens and twenty somethings who are not learning to drive, content to rely on just-as-needed transport options. Watch how young people arrange to meet – not through pre-established commitments, but rather through real-time coordination, based on immediate need and convenient availability.
These behaviours make sense. Economists, beginning with Ronald Coase in the 1930s, predicted that as communication costs fell, we would own less. Today it’s easy – and virtually free – to get what you want, when and where you need it.
Smart companies will continue to own or employ full-time certain categories of resources: those that are extremely scarce, to ensure availability; those that are highly strategic, to prevent availability to others. I would also argue in favour of holding tight to the humans who perform roles that will be least likely to be taken on by technology: those who form relationships and make tacit, values-based judgements.
But there are other categories of resources, both physical and human, that companies should begin to access in new and creative ways, leveraging today’s technology: fungible resources – particularly if demand fluctuates and if qualifications are easy to verify and, most importantly, resources for which future demand is difficult to predict and where greater optionality would have high value.
Just as the 1980s was the decade of process redesign as businesses leveraged the power of computers, the 2020s will be the decade of enterprise or business model reconstruction, leveraging the power of digital and related technologies. Smart companies will get a head start in 2019.
2. Performance management will give way to performance leadership Dan Cable, Professor of Organisational Behaviour
In 2019, leaders will start thinking more about performance leadership systems instead of performance management systems.
The goal of management is to relieve uncertainty by making processes more predictable and efficient. Performance management systems focus on hitting quarterly targets and following known processes, so that promises and regulations are met. Achieving these results is really good, until you end up efficiently producing what customers don’t want any more. Think Kodak, Blackberry, Nokia, Sears, Borders. The goal of a leader is to help an organisation stay effective and competitive. Leaders need to balance something that doesn’t want to be balanced. Efficiently meeting promises to customers and regulators makes it hard to experiment and learn. But short-term results are in vain if they can’t help keep the organisation relevant to the future. As one leader told me: “We need to be able to work on the plane while it is flying.”
There are two good reasons why leaders will become increasingly wary of performance management systems in 2019. First, they are usually focused on the past, not the future. Focusing on high-quality cellphone reception might work until competitors offer internet access and music capabilities on cellphones. Aiming for more and more efficient performance today is a great way to go out of business in five years. Second, measuring results means that you are not rewarding learning. When you focus on outcomes and achievement, what you lose is experimenting with new approaches. If we want people to innovate, stop rewarding good results based on bad processes and start rewarding experimentation even if the results are bad.
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“In 2019, organisations will continue to experience greater complexity and ambiguity, fuelled by the growth of nationalism, divisive politics and reverse globalisation.”
Performance leadership is when each employee understands and feels responsible for working on the airplane while flying it. Helping to meet current promises while helping the organisation adapt and learn about the future. Performance leadership encourages teams to work together to solve problems and stay market competitive, rather than individual employees trying to look good and compete with each other. Performance leadership is when an employee understands that her job is to find ways to do her job even better, and brings her unique talents, passions and interests to the work.
3. AI will remain top-of-mind Julian Birkinshaw, Professor of Strategy and Entrepreneurship, Deputy Dean
Every year brings another tech trend. 2016 was all about big data, 2017 was blockchain, and 2018 was the year AI hit the mainstream management press.
So what comes after AI? My hunch is it will continue to stay top-of-mind among businesspeople for another few years yet. But rather than focusing on the potential benefits of artificial intelligence, we will see a complementary narrative take shape about the unique qualities of human intelligence.
John Naisbitt and Patricia Aburdene, authors of the 1982 guide Megatrends: Ten New Directions Transforming Our Lives, said: “Whenever a new technology is introduced into society, there must be a counterbalancing human response… We must learn to balance the material wonders of technology with the spiritual demands of our human nature.”
The AI debate is already turning to these questions. What is left for humans to do when the computers take on more of our traditional jobs? What is the point of having firms for coordinating activities when technology can make coordination happen seamlessly and instantaneously? And what are the risks we create – for society – when we use algorithms rather than human judgment to make business decisions? These are important questions, but we have incomplete answers to them. Expect the debate in these areas to intensify in the next year or two.
4. Data science will be democratised Nicos Savva, Associate Professor of Management Science and Operations
Few pundits would disagree that data science, machine learning, and artificial intelligence offer a paradigm shift from reactive, approximate and slow decision making to proactive, precise, and fast decisions. With few exceptions, these tools have been the prerogative of technology firms born in the digital era (Google, Facebook, Amazon, Uber) or incumbents with substantial scale (Walmart, P&G, Marriott). 2019 is going to be the year where data science will revolutionise non digital SMEs (manufacturers, hospitals, traditional media and more).
“This coming year is likely to be full of uncertainty – due to events ranging from Brexit to the US-China trade tensions to EU reforms.”
Three factors are converging to make this happen. First, cloud computing is delivering substantial amounts of computational power to anyone that needs it — power that was only available at a huge upfront cost is now available at a small variable cost. Second, new tools have made it easier to collect, analyse and use data — you no longer need a PhD in data science to be able to meet the data science needs of an SME. Third, human capital is becoming more sophisticated. The emergence of data science masters and data-science-focused MBA programmes is producing analysts and managers who have the skill sets and the imagination to make data science work at smaller scale.
What are the implications of the new wave of data science? In the short term, more customer choice, better products/service customisation and lower costs. In the longer term, new and highly successful business models that would not have been possible without data science (e.g. AI-driven medical consultations or self-driving fleets of taxis). But as more decisions are delegated to automated data-driven systems, we need to worry about social implications — white-collar employment, data security and privacy, and algorithmic bias/discrimination will come to the forefront of public debate, as they should. With every new technology, there will be risks, and data science is no different.
5. Political and economic uncertainty will continue Linda Yueh, Adjunct Professor of Economics
This coming year is likely to be full of uncertainty – due to events ranging from Brexit to the US-China trade tensions to EU reforms. And it’s coming at a vulnerable stage in the business cycle where half of US Chief Financial Officers are expecting a recession in 2019 and over 80% of CFOs expect it by 2020. Starting in the UK, there is considerable uncertainty about whether Parliament will pass the Prime Minister’s Brexit withdrawal agreement, now scheduled for a vote during the week of January 14th.
The EU has indicated that they would be open to extending the departure date by three months, but that hasn’t precluded the Cabinet from stepping up “no deal” preparations to ensure the UK can trade on WTO terms at the end of the first quarter of 2019.
As if that wasn’t enough uncertainty, the first quarter of the year will also see the US and China aim to agree a trade deal or see 25% tariffs on all Chinese imports into the US and likely retaliation by China. The stakes are high. Can the US and China negotiate a trade agreement in three months? In one sense, a deal can be done fairly quickly if China opens up its market, particularly for services, as that should increase American exports since the US is the world’s largest exporter of services.
And there is uncertainty in the EU as well. Italy seems to have softened its stance around its budget deficit while France looks to be running afoul of EU budget rules after granting concessions to defuse the “yellow vest” protests. In addition, President Macron’s proposed EU reforms to create a central fiscal authority have stalled. So, where EU reforms are headed looks uncertain.
All of this uncertainty is coming at a time when the business cycle looks to have passed its peak. That’s the consensus for the US where economic growth likely peaked in the middle of 2018. And we tend to fall within the same business cycle. So, if the above uncertain geo-economic events affect the economy, it may worsen the cyclical slowdown.
Therefore, brace for uncertainty in 2019. It’s likely to be a volatile start to the year.
6. Complexity will throw up new opportunities Richard Jolly, Adjunct Professor of Organisational Behaviour
In 2019, organisations will continue to experience greater complexity and ambiguity, fuelled by the growth of nationalism, divisive politics and reverse globalisation. My current work with CEOs shows that they are less clear about what to do than ever before. We will continue to see firms with a track record of success struggling if they are unable to evolve.
Themes such as agility, the emergence of millennials into managerial positions and the rise of artificial intelligence (AI) and blockchain will make traditional command-and-control styles of management increasingly problematic. But, while things will get more challenging, the opportunities are going to be greater – whilst there will be losers, there will be winners.
So what will differentiate these winners? Less and less is it having the right strategy. Many organisations that fail have the right strategy – they just can’t get it to happen. The role of leaders is increasingly to create an empowering context.
When things are so complicated, one of the toughest challenges is building and retaining confidence. Some organisations bounce between over- and under-confidence. The great ones, whether mature or early stage, are able to retain the middle ground of the confidence spectrum.
What does this middle ground look like? Confident organisations have a well-articulated, compelling purpose; senior managers who role-model the behaviours they want from others; effective communication about what specific behaviours are needed to achieve the firm’s ambitions; a culture of psychological safety where people support each other, balanced with healthy challenge and feedback. They have a resilient attitude where “what doesn’t kill us makes us stronger”; people spend their time on their key priorities, rather than being lost in emails and inefficient meetings; and an environment where everyone feels that they can contribute.
It is rare these days, as digital transformation sweeps the business landscape, to meet a business leader who hasn’t either recently led or been part of a transformation. Once a one-off event in response to an urgent need—a dire competitive threat, sagging performance, an overdue process overhaul, or a post-merger integration—transformation is now the new normal. In fact, it has become so commonplace that we have dubbed this the era of “always-on” transformation.
Yet from experience we know that transformation continues to be very difficult, and the evidence shows that it often fails or falls short of expectations. Moreover, it can exact an enormous toll on leaders and employees, who are constantly being asked to step up, reach further, move faster, and adapt to change, with no end in sight. For leaders and employees alike, it’s less a marathon and more a triathlon; no sooner does one leg finish than another is under way, giving participants no chance to catch their breath before giving their all once again. Still, many organizations overcome the odds; some even achieve lasting results. How do these companies succeed where others fail?
A REIMAGINED APPROACH TO TRANSFORMATION
While there is no one-size-fits-all method, our extensive client work, along with our study of more than 100 companies that have undergone transformations (three or more for 85% of them), points to an approach that combines three interconnected elements. It involves thinking expansively and creatively about the future that the organization aspires to and focusing on the right strategic priorities to get there. It addresses the unrelenting, ever-shifting, ever-growing demands on employees by elevating the importance of actions that will inspire and empower people at all levels of the organization. And at a time of rapid change and disruption, it calls for more than just applying the appropriate means and tools to execute; it calls for companies to innovate while they execute—and do both with agility.
“Transformation in the new digital era requires a holistic, human-centric approach.”
In other words, transformation in the new digital era requires a holistic, human-centric approach, one we call the Head, Heart, and Hands of Transformation. The heart has received the least consideration, but it is attention to all three elements that enables organizations to succeed today and thrive tomorrow.
THREE CHALLENGES IN THE ALWAYS-ON ERA
Transformation today takes place from a variety of starting positions. Some organizations need to move quickly to improve the bottom line. Others enjoy respectable performance but lack a clear path to enduring success. Many companies are simply in need of rejuvenation, ready to imagine a new destiny and perhaps even to increase their contribution to society.
Transforming not merely to survive but to thrive entails addressing three broad challenges, crystallized in these questions:
How do we create our vision for the future and identify the priorities to get there? Many companies face an even bigger challenge than overcoming short-term performance pressures: How to reconcile multiple strategic options to envision a different future amid shifting customer needs, evolving technologies, and increasing competition.
How do we inspire and empower people? The relentless pace of always-on transformation can demoralize even the most engaged employees. Sustaining it while offering employees meaningful opportunity and fulfillment—intrinsic rewards that millennials and “digital natives” seek—adds substantial complexity to the challenge.
How do we execute amid constant change? Changing the business once meant executing from a playbook of primarily short-term, discrete actions. But transforming to thrive in the future often requires disrupting existing business models and value chains to solve customer needs—and doing so at digital speed. Today, when changing the business means simultaneously executing and innovating with agility, a conventional approach to execution is no longer enough.
Taken together, these three challenges can seem overwhelming. But they need not be.
Consider Microsoft. In February 2014, when Satya Nadella took the helm, the company was by no means broken, yet there were strong headwinds: Windows’ market share had declined, Microsoft had missed the mobile wave, and competitors—and customers—were moving aggressively to the cloud. The company’s inhospitable culture was depicted in a now-famous meme showing managers in different corners of the organization chart shooting guns at one another.
Since then, Microsoft’s performance hasn’t just improved; it has flourished. Revenues (particularly cloud-based revenues) have soared, the company’s stock price has more than tripled, market capitalization is approaching $1 trillion, and annualized TSR, at 26.5%, is twice that of the S&P 500. Perhaps most important, the company now boasts a visibly new culture of cooperation and a renewed commitment to innovation.
“Microsoft’s wholesale transformation has been the result not of a single move but of many changes orchestrated in parallel”
Microsoft’s wholesale transformation has been the result not of a single move but of many changes orchestrated in parallel that have touched every part of the organization. Nadella honed a mobile-first, cloud-first vision, aligning leaders around it and shifting resources toward the relevant businesses to accelerate innovation. In other words, he addressed the head of transformation. He articulated a new purpose—“to empower every person and organization on the planet to achieve more”—and fostered a new culture and leadership model, thus tending to the heart of transformation. He also unleashed new ways of working that have not only enabled execution but also have spurred innovation and agility; that is, he equipped the hands of transformation.
Microsoft’s transformation has reinvigorated a maturing company, positioning it to define and embrace its future with the strength and agility needed to thrive in a fast-changing, tumultuous business landscape.
THE POWER OF HEAD, HEART, AND HANDS
What actions constitute this fresh take on transformation? And what sets it apart from more traditional approaches?
The Head: Envision the future and focus on the big rocks. In the digital era, constant change makes it harder to commit to a view of the future; yet providing direction to the organization remains essential. That means companies and their leaders must draw on their strategic thinking, their imagination, their knowledge of customer needs and desires, and their pool of expertise, experience, and wisdom to forge an aspirational vision of a digitally enabled, growth-oriented future. They set priorities, focusing on the “big rocks” that will deliver results and create enduring value.1 They secure the alignment and commitment of the leadership team. And they establish and communicate a compelling case for change, internally and externally. In the past, these actions might have been one-and-done moves, distinct from the daily rhythms of business. But today, because the environment is constantly shifting and these strategic actions generally affect the whole enterprise, they must be revisited and updated on an ongoing basis (ideally, annually) and be integrated into the operating model of the organization.
The Heart: Inspire and empower your people. When transformations were viewed as one-off, short-term programs, inspiring and empowering people wasn’t seen as being essential to them; in fact, people were often treated as a means to an end or, worse, as collateral damage. But successful transformation today depends on people who are engaged and motivated to go above and beyond. Organizations can create this condition through a set of heart “practices.” What does this mean? Leaders invest time and energy in articulating, activating, and embedding the organization’s purpose. Companies create an empowering culture, shaped by leaders, that allows people to do their best work. They also demonstrate care for those whose lives are disrupted by the change—not only departing employees but those who remain to carry out the new vision. Finally, senior managers exercise a more holistic form of leadership: they clarify and navigate, they include and empower, and they delegate and enable their people and teams.
The Hands: Execute and innovate with agility. Executing a prescribed set of actions used to be enough to generate short-term bottom-line improvements. In this new era, when the future is unclear and the present is constantly changing, organizations need to innovate as they execute, and do both with agility. Consider this: Rather than delegate responsibility for execution to a transformation program owner (who occasionally updates leaders), companies give joint ownership of the ongoing transformation agenda to senior leaders. They ensure disciplined execution by equipping teams with the resources they need to make sound, prompt decisions. Companies also apply innovative methods and digital tools, and institute agile ways of working, to accelerate output, remove impediments, and enable end-to-end focus on the customer. Whereas building organizational capabilities was often an afterthought, today companies build capabilities while carrying out the transformation.
The head, heart, and hands approach to transformation is most powerful when each element is fully deployed. For this reason, the three elements should not be viewed as sequential actions but as three vital sets of activities that should happen in parallel—a holistic system.
Evidence of the impact of this approach is striking. In our study, which included in-depth interviews of leaders involved in these efforts, we asked whether the companies had addressed the actions consistent with the three elements. We then correlated the response with their subsequent performance. Ninety-six percent of the companies that fully engaged the three elements achieved sustained performance improvement, a rate nearly three times that of companies that did not engage the elements. (See Exhibit 1.)
When we asked survey respondents about the relative attention given to each of the three elements during transformation, the head consistently got the highest rating, followed by the hands. The heart came last. (See Exhibit 2.)
It’s thus only fitting that the heart—as the metaphorical center and source of inspiration and power—is at the center of this holistic approach.
THE HEART OF TRANSFORMATION: INSPIRE AND EMPOWER YOUR PEOPLE
People—individuals and teams—are the lifeblood of successful transformation. Transformation requires their effort, engagement, alignment, and willingness to go the extra mile. But in practice, the importance of people in transformation is often neglected; people often end up being treated as expedient or even dispensable. In the always-on era, the consequences of this neglect can be great, as people grow exhausted from keeping up with the latest technologies and adapting to relentless change.
Successful transformation takes heart. The heart serves as an apt metaphor, capturing the essence of the vital, life-giving source of power that people need to effect change.
So how can organizations develop a strong, healthy heart to inspire and empower people? In the context of transformation, we see four imperatives. Each of them, like the atria and ventricles of the heart, works in concert to perform the heart’s complete job: empowering and enabling people to give life to the transformation. (See “Healthy Heart, Strong Performance.”)
Increasingly, employees seek much more than a paycheck or tangible rewards; they want meaning, connection, and joy. They want to contribute, develop, and achieve. Organizations with purpose tap into these needs, producing a virtuous circle of benefits.
“In the always-on era, purpose is more important than ever.”
Purpose is an organization’s “why”—its existential reason for being. In the always-on era, it is more important than ever; it fuels transformation by fostering an emotional connection that inspires greater commitment and the willingness to go the extra mile. Purpose illuminates a direction as it links various transformation efforts in a way that is logical and accessible to everyone. But it can do so only when the organization translates it effectively into action.
Create an Empowering Culture
Culture is the lifeblood of the organization. It comprises a clear articulation of the values and behaviors that define how things get done in an organization. Activated by leaders, culture is reinforced by the organizational environment, or context, through such levers as customer service rituals, performance management systems, and informal interactions. A healthy culture serves as a tacit code of conduct that steers individuals to make choices that advance the organization’s goals and strategy. In the digital era, when self-direction and team autonomy are emphasized, a strong culture is particularly important.
Demonstrate Care
Layoffs, redeployments, and reskilling are inevitable today. Even healthy companies will likely have to restructure their workforce to add talent—in particular, people with digital skills and experience that align more closely with the business’s future needs. Such workforce turbulence can be traumatic not only for those who are laid off but also for those who remain. If left unattended, it can undermine morale and progress. At the very least, transformation can dampen engagement and disrupt employee cohesion, and it almost always puts extra demands on people.
For all these reasons, leaders must demonstrate care, compassion, and empathy—and not just through their words. For example, it is critical that leaders continue to solicit the input of employees who remain (say, through pulse checks or broader two-way communications) and actively, visibly address their concerns. To help employees who are leaving, companies can offer a battery of program options beyond the standard outplacement services, such as coaches to help individuals create a personal roadmap, job-market information sessions, resources for financial advice, and even guidance on entrepreneurship.
Lead with the Head, Heart, and Hands
Nothing is more important to the success of transformation than leaders. While they play many roles, leaders embody the heart of transformation.
Leaders clarify and navigate the way forward. Beyond envisioning the future and revisiting strategic priorities regularly, leaders provide constant guidance to their reports and unit heads and ensure that priorities remain linked to purpose. They are action oriented; they set clear accountabilities; and they work tirelessly to communicate a compelling case for change internally and externally.
Leaders are inspiring, empowering, and inclusive. Leaders instill confidence and courage, and motivate and inspire people to perform. They strengthen and encourage teams and support cross-organization collaboration. They demonstrate care and empathy, actively and candidly communicate with their people, and exercise inclusiveness.
Leaders delegate and enable agile teams. Leaders delegate responsibilities to autonomous agile teams, remove obstacles, and ensure all the necessary cross-functional resources are in place. They also support capabilities building, both human and digital.
EMBRACING THE HEAD, HEART, AND HANDS OF TRANSFORMATION
In the digital era, transformation has become the default state for most organizations. But always-on transformation needn’t be debilitating, exhausting, or demoralizing. We owe it to ourselves, our organizations, and society itself to boldly transform the approach we take to transformation.
Leaders need to move beyond short-term fixes to envision a compelling future, and focus on the big rocks required to get there. They need to stop treating people as a means to an end or, worse, as collateral damage, and instead inspire and empower them. They need to change how work gets done, moving from the expedient and prescribed set of actions to an approach that enables execution and innovation to occur simultaneously, with agility.
The head, heart, and hands of transformation is not a panacea, but it is a holistic and human-centric approach that is proven to enable organizations that truly embrace it to succeed today and thrive tomorrow.
Using advance Tech for predictive analytics in employee retention
This technique can help managers reduce attrition costs.
The future of human resources is changing. Like the rest of the business world, chief human resource officers (CHROs) and their teams are beginning to find that they need to focus on building a robust analytics capability to best prepare for the data-driven world.
“CHROs have said that they feel [pressured] as the only ones not bringing data to the table. The business is expecting HR to have similar numbers to marketing, though maybe not finance or operations,” observed Andrew Marritt, CEO of OrganizationView, a people analytics practice based in St Moritz, Switzerland. According to Marritt, the data-centric modern HR leader needs to know not only what has happened, but what is likely to happen.
A key HR concern for businesses is employee retention. There are significant financial and intangible costs associated with losing loyal and high-performing employees. Investments need to be made to find, hire, and train their replacements. There could also be a negative impact on the stakeholders they worked with regularly such as suppliers, colleagues, and customers. Some companies are starting to look to predictive analytics to increase their ability to mitigate the risk of employee turnover and increase retention.
Investment in building a people analytics capability need not be big at first, and businesses can benefit greatly from it. “Our research shows that the financial costs associated with attrition can range anywhere between 13% and 23% of annual compensation depending on the function/level of the employees under the scope of the study. In our experience, a focused attrition analytics predictive model can help lower this risk by 5% to 8% annually,” said Neeraj Tandon, director for workforce analytics and planning, Asia-Pacific, at Willis Towers Watson, in Gurgaon, India.
WHAT’S NEW
Traditional HR analytics are descriptive in nature and examine employee data across different dimensions such as department and demographics to identify past patterns within metrics like turnover and retention. Conclusions are then used to formulate talent policies. Descriptive analytics, however, cannot predict future outcomes at an individual employee level.
Predictive analytics does this by going a step further and using the evidence from descriptive analytics as inputs for advanced techniques like statistical modelling and machine learning. These methodologies provide forward-looking measures such as flight risk, which quantifies the likelihood of an employee’s leaving the organisation within a certain period of time.
Predictive analytics also identifies hidden connections between key factors contributing to employee turnover. The main predictor variables normally studied include pay, promotion, performance reviews, time spent at work, commute distance, and relationship with a manager. (See the chart, “Factors Contributing to Voluntary Turnover”, for a breakdown of key reasons for attrition at a sample organisation.) Organisations also use external data such as labour market indicators and the current economic scenario as causative variables while formulating hypotheses and building models for retention. HR teams and managers use the findings from the modelling to better design timely interventions to help retain employees.
Factors contributing to voluntary turnover
An ADP Research Institute white paper examined the factors leading to voluntary turnover at a sample company. The graphic below breaks down the reasons cited. By collecting and analysing the factors that contribute to turnover, companies can institute policies and procedures to address concerns.
In this example, management may want to focus its retention efforts on industry veterans who have not been with the company for very long or look at implementing more lenient telecommuting rules to ease attrition.
Source: ADP Research Institute white paper, Revelations From Workforce Turnover Study.
Deloitte estimates that about 8% of global businesses leverage predictive analytics for talent management, and the ones that do tend to be larger. According to Brian Kropp, group vice president at Gartner, organisations that develop this capability tend to be in sectors that are intellectual property dependent such as financial services, healthcare, and fast-moving consumer goods. Globally, businesses in all major economies are working towards acquiring this competence.
COST VERSUS BENEFITS
Organisations looking to develop competence in predictive analytics have several options. Consulting organisations offer expertise towards building this capability. For businesses looking to set up internal capabilities for smaller capital outlay, many choose to employ or train in-house data scientists who may turn to inexpensive software such as IBM SPSS or free open-source software known as R for their initial modelling.
External vendors that set up human capital management systems with predictive analytics capabilities are also available at different price points. However, experts warn that internal teams should make sure that the human capital management systems offered integrate with data systems within the organisation. The systems should not overpromise and underdeliver in terms of features and tools, and vendors should provide the guidance to use them insightfully.
DATA-BASED CHALLENGES
According to Bersin by Deloitte, an HR research organisation, setting up clean and accurate data streams is, and will remain, a challenge for people analytics. As the research indicates, most big organisations have five to seven systems of record for their human resources data. This means that information often used in predictive modelling is inaccurate or unavailable, a serious stumbling block.
“As statisticians, we do deploy multiple data treatments to improve the quality of data. However, often data on some important variable are incomplete, and as a result we ignore these variables. Some of these variables could be important to predict the outputs. Hence, it’s important that organisations continuously focus on data quality improvement,” Tandon said.
Companies should run specific data quality programs to make the data fit for modelling. These programs would be of greater effectiveness if they were directed at key variables that predict output variables such as attrition rather than across the entire dataset, he added.
BUILDING A GOOD MODEL
Besides clean, accurate data streams, a few further steps can be taken to ensure that predictive retention models are a robust tool for decision-making. For one, studying the workforce in clusters of employees with similar characteristics and reasons for leaving the organisation is essential for building models that lead to targeted and effective retention strategies, according to Tandon.
Model building also goes through multiple iterations to ensure it fits the data optimally, which includes choosing or eliminating causative variables scientifically, and testing the model on an existing dataset to gauge how accurately it predicts actual outcomes. With the acknowledgement that numbers do not tell the entire story, intuition is also factored into models. “There is a good reason people are intuitive; they have got experience,” explained Marritt on how this contributes to the model’s effectiveness.
However, a degree of inaccuracy is associated with predictive modelling, and this is where HR and managers play an important role. “Data should just be another voice at the table. Decisions have to be made by humans,” said Marritt, on how these tools can influence employees’ working lives. It is always better to roll up the data and use them at an aggregated level such as teams, rather than at an individual level, because the implications of making an incorrect decision are considerable, he added.
Last but not least, as with any new initiative, organisations must recognise that adequate coaching and oversight mechanisms should be in place to help users leverage the technique correctly and thoughtfully. According to Tandon, managers are being trained on the key objectives of developing attrition models and coached on how to use the information to prevent high-performing employees from leaving, without creating a bias against the identified individuals.
Central governing teams (often comprising business and HR team members) monitor and track interventions taken by line managers to reduce attrition risk for employees identified as a high flight risk. This also helps organisations bring some level of consistency in interventions to control attrition, Tandon added.
TARGETED APPROACHES
Once these checks and balances are in place, a data-driven approach that includes predictive analytics is seen to bring greater transparency and balance to decision-making. “There have been instances where decisions were made by those who were the most vocal. This will be harder in a world where data is needed to support decisions,” observed Marritt.
The key causative variables that emerge during modelling will also help organisations craft more effective retention strategies. If commute distance emerges as a major driver, for example, greater efforts can be directed towards options such as remote working. If a limited training budget is available, it can be used to provide inputs for those employee segments that have a high flight risk. While HR and managers have always designed these interventions, a forward-looking, rigorous technique enables them to direct time and money towards these efforts with greater precision and with greater confidence in the outcome.
Furthermore, finding unexpected patterns in the data can help design retention strategies that make strong business sense. Marritt’s team at OrganizationView, for instance, found that high work pressure was a key cause for attrition at a certain financial services organisation. However, it was more so for low to midlevel performers while top performers actually thrived under high pressure and were more likely to leave in its absence. Since high-performer attrition had a greater financial impact, the organisation focused on this rather than overall attrition.
THE NEAR HORIZON
Companies are experiencing a massive change in the data they have about customers, and the same change is coming to what they know about employees, according to Kropp. Organisations that figure this out and get there faster will retain a higher-quality workforce. It will be the single most successful differentiating factor on that front, and a must-have for businesses that cross a thousand employees, he added.
Over the last three years, Gartner has also seen a significant increase in the number of organisations that collect employee data in unconventional ways, such as social media activity, speed of keystrokes, mood recognition, email text and frequency, and wearable microphones. Organisations are attempting to understand employee behaviour and experience through these experiments, and some of them will be input into models, which will increasingly graduate from predicting flight risk and quality of hire, which are relatively easy to measure, to hard-to-define variables such as employee engagement and performance, Kropp said.
On the maturity front, while only a small percentage of organisations surveyed by Deloitte currently have the capability for people analytics, in a more recent survey 69% of businesses say they are integrating data to build a people analytics database. The analytics function will also grow into a multidisciplinary team that will solve business-critical problems to drive business results.
CFOs to participate on corporate boards is increasing.
Seventy-nine per cent of CFOs are experiencing increased demand for their expertise on corporate boards, according to an Ernst & Young survey of 800 global finance chiefs. CFO and Beyond: The Possibilities and Pathways Outside Finance communicated the results of the survey and a study of 347 companies worldwide with annual revenue over $5 billion.
Current or former CFOs make up 14% of board members of the companies studied, up from 8% in 2002. And 41% of audit committee chairs are current or former CFOs, up from 19% in 2002.
The desire on the part of CEOs to have finance professionals look beyond their functional silo to collaborate effectively on strategic decisions was revealed in the CGMA report Rebooting Business: Valuing the Human Dimension. Those same skills are sought by corporate boards, and CFOs are supplying them.
Jim Ladd, CPA, CGMA, senior vice president of finance and operations at the Institute for Systems Biology in Seattle, estimated that he has served on about 18 boards during his career. His current board responsibilities include an audit committee role for a New York Stock Exchange-listed company, a lead independent director position with a privately owned company in Seattle, and participation on two not-for-profit boards.
He said finance executives can contribute a lot to boards.
“They’re generally sought out initially because of finance background and a knowledge of financial reporting and audit risks and that sort of thing,” Ladd said. “But CPAs have a broader background than that. And people discover that.”
Audit committee a good fit
Finance skills make CFOs ideal candidates for audit committee positions. In many jurisdictions, regulatory requirements demand that at least one audit committee member have financial expertise to keep abreast of evolving accounting standards, risks and regulations.
Public companies listed in the United States, for example, must disclose whether they have at least one financial expert independent of management on their audit committee. The United Kingdom’s Corporate Governance Code says a board should satisfy itself that at least one audit committee member has recent, relevant financial experience.
This can be a benefit and a frustration to CFOs. Eighty-one per cent of them say finance leaders are good choices for audit committee jobs because of their finance acumen. But CFOs want to make sure their skills in strategic development and other areas are recognised, too.
“Some of them can be a little insulted that the breadth of their experience as CFO is not necessarily recognised,” Gerard Dalbosco, an E&Y managing partner, said in the report.
Opportunity to branch out
Although CFOs already have busy jobs, about two-thirds of them reported that they have taken on, or would be willing to accept, more part-time, voluntary or non-executive roles. Twenty-seven per cent said they already have taken such a role, and 40% said they haven’t yet, but would be interested in doing so.
Scott Lampe, vice president and CFO of Hendrick Motorsports in North Carolina, serves on a few community and government boards and said he is willing to consider working on boards of companies that don’t have a lot of risk and are looking to grow organically. “I want to work with companies who share my philosophy about how a business should be run and what kind of contribution it can make in improving the communities is operates in,” Lampe said.
What do CFOs reap from serving on boards? Three-quarters of survey respondents said gaining general management or board level experience is a benefit. Other top benefits included gaining exposure to another company or industry (65%) and getting a different perspective on running an organisation (62%).
“You get to look beyond the purely financial and think more strategically about a different organisation,” Qatar Foundation CFO Faisal Al-Hajri said in the report. “You can also use these roles to play a broader role in society or the community.”
Serving on charitable and community service boards also gives CFOs an opportunity to give back to the community. Mick Armstrong, CPA, CGMA, recently agreed to serve as treasurer on the board of directors of the chamber of commerce in Meridian, Idaho, where he is employed as CFO of Micro 100 Tool Corp.
“We as a company are committed to the community and realise that just our business environment, the quality of life for our employees, all is wrapped up together,” Armstrong said. “So we choose to be involved in the community.”
Protection from liability
Ladd said a key question any potential board member should ask before considering a seat on a board is whether the organisation carries liability insurance for its directors and officers. He said risk exists even at not-for-profit organisations, so board members should make sure they are protected.
In addition, Ladd said, it is important to make sure you are working for an organisation that supports your involvement on an external board. And you need to have the time and energy to fulfil your board duties in addition to your regular job.
Armstrong, for example, said his duties as chamber of commerce treasurer are made easier by Micro 100’s recent hiring of an accounting manager with a public accounting background. As Armstrong moves toward more of an executive leadership role with his company, this distancing from Micro 100’s daily accounting activity also has helped him find more time – early in the morning, at lunchtime and on weekends – to devote to his board duties.
Ladd said he does a lot of his board work during evenings and weekends.
“I sometimes joke with my wife when I come home at night that I’m starting my second job,” Ladd said. “…But most of the meetings are during the day, so you do have to have an understanding employer. That puts some strain and requires extra time in your life. There is no doubt about that.”
Strategies to use analytics for competitive advantage
Organisations are building momentum for the use of Big Data by integrating data analytics into their strategy in small projects that deliver substantial results, according a new report.
Almost all respondents – 96% – said that analytics will become more important to their organisations in the next three years, according to a Deloitte report based on a mix of 100 online surveys and 35 interviews conducted with senior executives at 35 companies in North America, the UK and Asia.
Although analytics already is an important resource for many companies, analytical technology remains immature and data under-utilised, according to the report. Getting buy-in for further projects is essential, so analytics leaders are starting small.
“Projects that demonstrate analytics’ ability to improve competitive positioning help these initiatives gain traction across the enterprise,” Deloitte Touche Tohmatsu Limited’s Global Analytics Leader Tim Phillipps wrote in the report.
Companies can prepare themselves to use analytics for competitive advantage, according to the report, by using the following strategies:
Acquire the right talent now. Talent for analytics and Big Data is in high demand. Talent shortages may become more of a barrier to analytics implementation as more companies use data to drive more processes and decisions.
Tie analytics to decision-making. Better data and analysis don’t necessarily result in better decisions. Specific initiatives to improve decision cultures and processes, along with changing the understanding and behaviours of front-line workers, lead to better decisions, the report says.
Apply analytics to marketing and customers. Finance operations are the most frequent area of analytics investment, with implementation by 79% of respondents. Marketing and sales groups, at 55%, are the second-most frequent analytics users, and the report says the best financial returns from analytics often come from marketing and customer-oriented applications.
Coordinate and align analytics. There is little consistency among companies with regard to who oversees analytics initiatives. Business units or division heads (23%), no single executive (20%), CFOs (18%) and CIOs (15%) were most commonly cited. More co-ordination may be needed to realise the full benefits of data throughout the organisation.
Create a long-term strategy for analytics. While current analytical processes are being implemented, a multi-year plan for the growth of analytical capabilities – linked to strategy development – will help organisations better use data over time, the report says.
