Saratoga

“Building a Leadership Legacy”

North Carolina HealthcareHuman Resource AssocROI of Human Capital

Saratoga

Agenda

– Over view of Saratoga Institute – Current Workplace Trends – ROI of Human Capital– What Employer of Choice Companies are

Doing

Saratoga

Saratoga Institute

Helping clients improve profitability and

productivity through the strategic

application of human capital intelligence

Saratoga

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

Saratoga Worldwide10 affiliates reaching clients in 25 countries

Australia

U.K.

Malaysia Micronesia

PhilippinesVenezuela

Belgium - France - Germany - Italy - Netherlands Portugal - Spain - Sweden - Switzerland

Singapore

UruguayArgentina

Chile New Zealand

Mexico Guatemala

Canada

SI

Indonesia

Hong Kong

Australia

Brazil

South Africa

Saratoga

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

The Big Picture

Current Workplace Trends

Saratoga

The People Problem

100 80 60 40 20 0 20 40 60

GDP +96%

BIRTHS -33%

1965 1998

Saratoga

The TrendsEscalating Costs

1997 2000 2002 2005

Cost/Hire 2228 3072 3655 4529 -exempt 6481 8932

10,581 13,054Time 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

Saratoga

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

Saratoga

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%

Source: Saratoga Institute 2000 Benchmark Data

Turnover in early time frames leads to increased staffing and training costs

Saratoga

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%

Source: Saratoga Institute 2000 Benchmark Data

Industry in slow growth period

Saratoga

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%

Source: Saratoga Institute 2000 Benchmark Data

Industry has very high turnover

Saratoga

Generation 1996 2000

Pre-Baby Boom (Born before 1946)Pre-Baby Boom (Born before 1946) 26% 26% 15%15% 6% 6%

Baby Boom (1946-64)Baby Boom (1946-64) 50%50% 50%50% 50%50%

Generation X (1964-)Generation X (1964-) 24%24% 35%35% 44%44%

2005

Current Workforce TrendsChanging Demographics

-Key talent aging-Median age increased from 28 in 1970 to 35 today to 40 by 2010

-2001 Baby Boomers become eligible for early retirement

-6.5 million will turn 55 by 2002 -15% decline in 35-44 year olds over the next 15 yearsDespite the tight labor market, only 65% of the companies today actively

recruit older workers to fill their vacancies

Saratoga

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

Saratoga

Today’s OrganizationStruggling 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

Saratoga

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

Saratoga

Current Workforce Trends

Maintaining a competitive advantage means focusing on:

- Recruitment- Retention- Becoming an “Employer of

Choice”

ROI of Human Capital

Saratoga’s Approach

Saratoga

In A Knowledge Economy, The Primary Profit

Lever is

People

Saratoga

The Secondary Profit Lever Is

Information

-Hard and Soft Data-Employee Opinions-Saratoga Institute Human Capital Benchmarks

Saratoga

Information Is Power

Without Objective Data, People Have Opinions

With Objective Data,People Have Competitive Advantage

Saratoga

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

Saratoga

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

Saratoga

Uses For Hard Data

Communicate Performance Expectations

See (vs. “feel”) & Understand Outcomes

Compare to Standards / Benchmarks

Identify Performance Gaps

Recognize & Reward Performance

Support Resource Allocation Decisions

Saratoga

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

Saratoga

System Linkage

Enterprise Goals

Knowledge ManagementBusiness Unit PQS Objectives

HC ManagementAcquire - Maintain - Develop - Retain

Saratoga

HUMAN CAPITAL MANAGEMENTHire CostPay TimeSupport VolumeDevelop QualityRetain Reaction

OPERATING OBJECTIVES

Service: Customer Satisfaction

Quality: Six SigmaProductivity: Unit Cost

ENTERPRISE GOALS

Financial: Profit - EPS Position: Market ShareBrand: Sign of QualityReputation: Employer of Choice

Human Capital

Value Chain

1

2

3

4

Saratoga

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.

Saratoga

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.

Saratoga

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.

Saratoga

Human Capital Value Case Study

Missed OrganizationPerformance Metrics

Time to Start 90 DaysInconsistent Hiring Criteria

X-Ray Technician Team Customer

Delayed scheduling timeRedone tests

Penalties for delays

Missed PerformanceGoals

Fewer customers servedLess revenue per test

Saratoga

Cost of the Turnover GapUsing the Saratoga Data

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

Cost Per Hire measures the average dollars spent on hiring costs per employee hired.

Extending Tenure Measurably Decreases Costs

Saratoga

Cost of the Turnover GapUsing the Saratoga Data

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

Revenue Factor measures the dollars of revenuegenerated per FTE annually (productivity measure)

Reducing Time to Start Can Increase Revenue

Saratoga

Human Capital Data Management

SupportWorkforce Planning Acquisition Retention

Evaluate the Effect

Development

Saratoga

Human Resource Data Points

Cost

Time

Quantity

Quality

Reaction

Staffing

Time to Fill Cost/Trainee Hr Turnover by LOS

Mgr Satisfac. Trainee Response Turnover Reason

No. Hired No. Trained Turnover Rate

Hire Rating Skills Attained Readiness

Cost / Hire Cost / Trainee Cost / Turnover

Developing Retaining

Saratoga

Human Capital Management Scorecard

Acquisition MaintenanceCost per Hire Average PayTime to Fill Jobs Benefits / PayrollNo. & Quality of Hires Process Costs

Retention DevelopmentVoluntary Separations Training Cost / PayrollSeparation by LOS Training Hours / EECost of Separations Training ROI

Job Satisfaction Employee Morale

Saratoga

Effects On Operational Processes

Process Change Impact Value

Patient Quality rating Satis. increases Higher = $XXX

Recruiting

Time to fillshortened byimplementingnew staffingprogram

Fill 14 daysfaster, meet Scheduling Demands

Rev / day= $XXX

Increase Cust Sat/Dr.

Satis

Saratoga

Operations Data Points

Service Quality Productivity

Cost per Serv

Time to Respond

Patients Trted

Misdiagn Rate % Misstrd

PatientSatisfaction

Cost / Contact Redo Cost

Recall Rate Time to Treat

Calls Handled

Misinformation

Turnover Rate Srvc / Worker

Rework Rate

Time

Errors

Human

Volume

Cost

Saratoga

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

Saratoga

“If you don’t measure

your results,

Robert GalvinRetired Chairman

Motorola

you’re only practicing.”

Saratoga

Human Capital Value

HCROI: Revenue $1,000,000 Expense 800,000 Pay/Benefits 500,000 Nonhuman 300,000

Adjusted Profit 700,000Divided by Pay & Ben 500,000

HCROI Ratio = $1.00 : $1.40 *Return on investment on $ spent on people

Saratoga

Company Profile Report SamCo Competitor

Industry Results Results MeanKPI

Revenue/FTE $125,000 $120,000 $110,000

Expense/FTE 110,000 95,000 90,000

HCROI $1 : 1.43 $1 : 1.86 $1 : 1.58

Ttl Comp / Exp 30% 26% 33%Ttl Lbr Cost / Exp 32% 31% 38%

Mgt Ratio 5.50 - 1 8.37 - 1 8.08 – 1

Saratoga

Hire / Retention Report SamCo Competitor

Industry Results Results Mean

KPI Hire Rate 17.1% 11.6% 18.4% Add (Grow) 2.8 5.5 8.3 Replace 14.3 6.1 10.1

CPH - EX $8,573 $9,847 $9,010Fill Time - EX 38 68 65

T/O - EX 7.5% 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.

Saratoga

Best Practices: Critical Elements -Keys to Winning and Keeping Talent

• Develop retention strategiesDevelop retention strategies

• Develop talentDevelop talent

• Recruit talent continuouslyRecruit talent continuously

• Build high-performance cultureBuild high-performance culture

• Create “extreme” Create “extreme” employeeemployeevalue propositionvalue proposition

• Develop retention strategiesDevelop retention strategies

• Develop talentDevelop talent

• Recruit talent continuouslyRecruit talent continuously

• Build high-performance cultureBuild high-performance culture

• Create “extreme” Create “extreme” employeeemployeevalue propositionvalue proposition

Adapted from McKinsey’s War For Talent 2000Adapted from McKinsey’s War For Talent 2000

InstillInstillTalentTalent

MindsetMindset

InstillInstillTalentTalent

MindsetMindset

ImprovedImprovedFinancialFinancial

Performance:Performance:

Top Talent FirmsTop Talent Firms1.7 times greater1.7 times greater

RSE thanRSE thanMid Talent FirmsMid Talent Firms

ImprovedImprovedFinancialFinancial

Performance:Performance:

Top Talent FirmsTop Talent Firms1.7 times greater1.7 times greater

RSE thanRSE thanMid Talent FirmsMid Talent Firms

Saratoga

Employee Dissatisfaction

Voluntary Terminations*

Compensation 19%Supervision16%Opportunity 12%Leadership12%

* 14,180 interviews from 50 companies in 2000

Saratoga

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

Benchmark Database

Industry

Size

Region

Growth

Saratoga

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

Saratoga

Saratoga’s Value PropositionV

alu

e

Time

Assessment

Execution

Strategy

Intelligence

Information

Data

Saratoga

If you measure it, you can understand it.

If you understand it, you can improve it.