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“Building a Leadership Legacy” North Carolina Healthcare Human Resource Assoc ROI of Human Capital

Saratoga. “Building a Leadership Legacy” North Carolina Healthcare Human Resource Assoc ROI of Human Capital. Agenda. Over view of Saratoga Institute Current Workplace Trends ROI of Human Capital What Employer of Choice Companies are Doing. Saratoga Institute.

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“Building a Leadership Legacy” North Carolina Healthcare Human Resource Assoc ROI of Human Capital

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  1. Saratoga “Building a Leadership Legacy”North Carolina HealthcareHuman Resource AssocROI of Human Capital

  2. Agenda • Over view of Saratoga Institute • Current Workplace Trends • ROI of Human Capital • What Employer of Choice Companies are Doing

  3. Saratoga Institute Helping clients improve profitability and productivity through the strategic application of human capital intelligence

  4. Saratoga InstituteWho Are We? • Founded in 1977 by Dr. Jac Fitz-enz • Based on over twenty years experience in human capital research • Data and interviews from over 900 companies in 19 industries • Over 1 million data elements from potential, current and past employees • Relies on continuing academic research and studies

  5. Saratoga Worldwide10 affiliates reaching clients in 25 countries Belgium - France - Germany - Italy - Netherlands Portugal - Spain - Sweden - Switzerland Canada U.K. SI Hong Kong Mexico Guatemala Philippines Venezuela • Micronesia Malaysia Brazil Singapore Indonesia Australia Australia Chile Uruguay New Zealand South Africa Argentina

  6. What We Do • Publisher of the world’s largest database of human capital intelligence • Experts in Employee Commitment Surveys and Consulting • Thought leaders in the human capital industry • Design and implement Human Capital programs

  7. Current Workplace Trends The Big Picture

  8. The People Problem 100 80 60 40 20 0 20 40 60 GDP +96% BIRTHS -33% 1965 1998

  9. The TrendsEscalating Costs • 1997 2000 2002 2005 • Cost/Hire 2228 3072 3655 4529 -exempt 6481 8932 10,581 13,054 • Time to Start 58 78 92 113 • Voluntary Sep 1-3 yrs 26% 30% 33% 38% • Training Invest Factor 441 495 549 630 • *Data based on research from Saratoga Institute

  10. Current Workforce Trends • Unemployment is low: • Latest is 4.1%* • Range of 3.9 to 4.1 since October, 1999 • Turnover is high: • Median Separation Rate for all industries is 16.5%** • Absenteeism is high: • The rate of absenteeism has increased by more than 14% since 1996*** • On average, absenteeism costs $603 per employee Sources * U.S. Department of Labor ** Saratoga Institute, Human Capital Benchmarking Report 2000 *** CCH Inc. Unscheduled Absence Survey, 1996

  11. Hospitals / Healthcare Industry Current Status Voluntary Separations by Length of Service 0 -1 year 32.9% 1+ - 3 years 29.2% 3+ - 5 years 11.1% 5+ - 10 years 12.0% 10+ years 12.3% Turnover in early time frames leads to increased staffing and training costs Source: Saratoga Institute 2000 Benchmark Data

  12. Hospitals / Healthcare Industry Current Status Add Rate: Number of new jobs added last year National Median 6.4% Highest 21.7% (services industry) Lowest 1.4% (chemicals/petroleum industry) Hospitals/Healthcare 2.9% Industry in slow growth period Source: Saratoga Institute 2000 Benchmark Data

  13. Hospitals / Healthcare Industry Current Status Replacement Rate: Number of jobs needing replacement hires last year National Median 13.8% Highest 22.7% (services industry) Lowest 4.7% (manufacturing industry) Hospitals/Healthcare 21.7% Industry has very high turnover Source: Saratoga Institute 2000 Benchmark Data

  14. Current Workforce TrendsChanging Demographics 1996 2000 2005 Generation 15% Pre-Baby Boom (Born before 1946) 26% 6% 50% 50% Baby Boom (1946-64) 50% 44% Generation X (1964-) 24% 35% • Key talent aging • Median age increased from 28 in 1970 to 35 today to 40 by 2010 • 2001 Baby Boomers become eligible for earlyretirement • 6.5 million will turn 55 by 2002 • 15% decline in 35-44 year olds over the next 15 years • Despite the tight labor market, only 65% of the companies today actively • recruit older workers to fill their vacancies

  15. Current Workforce TrendsChanging Demographics • 75% of the jobs of the future will be knowledge based jobs • and yet... • 75% of current workforce (age 25 to 34) have not completed college • 70% of workforce will not be college graduates in the next decade • 21% of the current adult population has only basic literacy skills • 75% of workers will need retraining within the decade 1997 2000 2002 2005 Training Invest Factor$441 $495 $549 $630

  16. Today’s Organization Struggling with Employee Commitment • Profound Organizational Upheaval • Uncertainty • Lack of A Clear Corporate Vision • Mergers and Acquisitions Activity • Intense Competition for Talent • Changes in Executive Management • Pressure to Deliver Results • Share holder value • Impact of Unfilled Jobs • Struggle to maintain work/life balance • Decreased Productivity • Apathy • High levels of turnover

  17. Five Most Negative Gaps Concern GAP • Upper mgmt leadership skills 2.32 • Current bonus or add’l pay plans 2.26 • Earnings potential 2.12 • Company stability 2.16 • Company loyalty to employees 2.12

  18. Current Workforce Trends Maintaining a competitive advantage means focusing on: • Recruitment • Retention • Becoming an “Employer of Choice”

  19. Saratoga’s Approach ROI of Human Capital

  20. In A Knowledge Economy, The Primary Profit Lever is People

  21. The Secondary Profit Lever Is Information • Hard and Soft Data • Employee Opinions • Saratoga Institute Human Capital Benchmarks

  22. Information Is Power Without Objective Data, People Have Opinions With Objective Data, People Have Competitive Advantage

  23. Importance Of Intangibles “...the factors most important to economic growth and societal wealth are intangible, such as intellectual capital, research and development, brand names and human capital.” Unseen Wealth: Report of the Brookings Task Force on Understanding Intangible Sources of Value

  24. Measurement State Of The Art “81% stated their performance measurement system is not well aligned with corporate strategies”* * Cap Gemini Ernst & Young Center for Business Innovation - 2000

  25. Uses For Hard Data • Communicate Performance Expectations • See (vs. “feel”) & Understand Outcomes • Compare to Standards / Benchmarks • Identify Performance Gaps • Support Resource Allocation Decisions • Recognize & Reward Performance

  26. Performance Analysis • Unit Cost of Products & Services • Cycle Time of Key Processes • Volume of Output over Input • Error or Defect Rates (Quality) • Customer Satisfaction Scores

  27. System Linkage Enterprise Goals Knowledge Management Business Unit PQS Objectives HC Management Acquire - Maintain - Develop - Retain

  28. Human Capital Value Chain ENTERPRISE GOALS Financial: Profit - EPS Position: Market Share Brand: Sign of Quality Reputation: Employer of Choice 1 OPERATING OBJECTIVES Service: Customer Satisfaction Quality: Six Sigma Productivity: Unit Cost 4 2 HUMAN CAPITAL MANAGEMENT Hire Cost Pay Time Support Volume Develop Quality Retain Reaction 3

  29. Human Capital Value Case Study Organization Profile: • Multi-location healthcare provider with a workforce of 5,000. • Hospitals/Healthcare Organization Performance Metrics for X-ray technicians. • Waiting time for Drs. scheduling patient tests. • Number of patients scheduled. • Number of tests completed. • Number of tests that have to be redone. • Revenue generated per test.

  30. Human Capital Value Case Study Human Resource Management: • Management responsible for recruiting and interviewing. • Criteria for hire may vary depending on urgency of need for X-ray technician staff. • Criteria for needed skills vary. • Division HR supports managers once candidates are identified. Provides screening support and assistance with hiring technicians: background checks, offer and processing of new hire paperwork.

  31. Human Capital Value Case Study Current State • Time to start for X-ray technician is 90 days average. • Turnover for X-ray technicians with less than 2 years of service is 65%. • There are 200 open positions for X-ray technicians at this healthcare organization.

  32. Human Capital Value Case Study Time to Start 90 Days Inconsistent Hiring Criteria X-Ray Technician Team Customer Delayed scheduling time Redone tests Missed Performance Goals Penalties for delays Missed Organization Performance Metrics Fewer customers served Less revenue per test

  33. Extending Tenure Measurably Decreases Costs Cost of the Turnover GapUsing the Saratoga Data Cost Per Hire measures the average dollars spent on hiring costs per employee hired. Average Cost Per Hire for Hospital/Healthcare Industry $ 1,254 Multiply by 200 open positions with average time of 1 quarter to fill Results in turnover costs of at least$250,800 per quarter Cost Per Hire Source: Saratoga Institute 2000 Benchmark Data

  34. Reducing Time to Start Can Increase Revenue Cost of the Turnover GapUsing the Saratoga Data Revenue Factor measures the dollars of revenue generated per FTE annually (productivity measure) Median Revenue Factor for Hospital/Healthcare Industry $ 102,438 Divided by 4 = revenue per FTE per quarter $ 25,609 Multiply by 200 open positions with average time of 1 quarter to fill Results in revenue loss of $5,121,800 per quarter Revenue Factor Source: Saratoga Institute 2000 Benchmark Data

  35. Human Capital Data Management Workforce Planning Acquisition Retention Support Development Evaluate the Effect

  36. Human Resource Data Points Staffing Developing Retaining Cost Cost / Hire Cost / Trainee Cost / Turnover Time Time to Fill Cost/Trainee Hr Turnover by LOS Quantity No. Hired No. Trained Turnover Rate Hire Rating Skills Attained Readiness Quality Reaction Mgr Satisfac. Trainee Response Turnover Reason

  37. Human Capital Management Scorecard AcquisitionMaintenance Cost per Hire Average Pay Time to Fill Jobs Benefits / Payroll No. & Quality of Hires Process Costs RetentionDevelopment Voluntary Separations Training Cost / Payroll Separation by LOS Training Hours / EE Cost of Separations Training ROI Job Satisfaction Employee Morale

  38. Effects On Operational Processes ProcessChangeImpactValue Fill 14 days faster, meet Scheduling Demands Rev / day = $XXX Increase Cust Sat/Dr. Satis Time to fill shortened by implementing new staffing program Recruiting Patient Quality rating Satis. increases Higher = $XXX

  39. Operations Data Points Service Quality Productivity Cost Cost / Contact Redo Cost Cost per Serv Recall Rate Time to Treat Time to Respond Time Volume Patients Trted Calls Handled Rework Rate Misdiagn Rate % Misstrd Misinformation Errors Patient Satisfaction Human Turnover Rate Srvc / Worker

  40. Human Capital Corporate Scorecard Financial Revenue / FTE Human Capital Cost Human Capital ROI Human Capital Value Added Human EVA Human Accession Percent Contingent Percent Professional Ratio Supervisory Ratio Separation Percent

  41. “If you don’t measure your results, you’re only practicing.” Robert Galvin Retired Chairman Motorola

  42. Human Capital Value HCROI: Revenue $1,000,000 Expense 800,000 Pay/Benefits 500,000 Nonhuman 300,000 Adjusted Profit 700,000 Divided by Pay & Ben 500,000 HCROI Ratio = $1.00 : $1.40 *Return on investment on $ spent on people

  43. Company Profile Report SamCoCompetitor Industry ResultsResults Mean KPI Revenue/FTE$125,000$120,000 $110,000 Expense/FTE110,000 95,000 90,000 HCROI$1 : 1.43$1 : 1.86 $1 : 1.58 Ttl Comp / Exp30%26% 33% Ttl Lbr Cost / Exp32%31% 38% Mgt Ratio5.50 - 1 8.37 - 1 8.08 – 1

  44. Hire / Retention Report SamCo Competitor Industry ResultsResults Mean KPI Hire Rate17.1% 11.6% 18.4% Add (Grow)2.85.5 8.3 Replace14.36.1 10.1 CPH - EX$8,573$9,847 $9,010 Fill Time - EX3868 65 T/O - EX7.5% 3.6% 6.6% Training Comp 1.12% 1.45% 1.86% HR Investment 0.39% 0.85% 0.68% Less time and $ spent on Human Capital side of the org.

  45. Best Practices: Critical Elements -Keys to Winning and Keeping Talent ImprovedFinancialPerformance: Top Talent Firms 1.7 times greater RSE than Mid Talent Firms • Develop retention strategies • Develop talent • Recruit talent continuously • Build high-performance culture • Create “extreme” employeevalue proposition InstillTalentMindset Adapted from McKinsey’s War For Talent 2000

  46. Employee Dissatisfaction • Voluntary Terminations* • Compensation 19% • Supervision 16% • Opportunity 12% • Leadership 12% * 14,180 interviews from 50 companies in 2000

  47. Benchmark Database Revenue & Expense Headcount & FTEs HR Department Cost & FTE Ratio Compensation Cost Management Benefits Cost Management Staffing Costs - Time - Volume Separation Rates & Costs Training Costs & Volume Employee Values & Needs Industry Size Region Growth

  48. What Successful Organizations Are Doing • Retain Key Talent - Attract, Assimilate, Develop • Effectively Manage Workforce Costs • Distinguish Between Core and Non-Core Capabilities • Measure the Impact of Human Capital • Implement Efficient Technology Solutions • Foster High Levels of Employee Commitment

  49. Saratoga’s Value Proposition Assessment Execution Strategy Value Intelligence Information Data Time

  50. If you measure it, you can understand it. If you understand it, you can improve it.

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