HR Analytics Case Study: HR factors that influenced financial performance in a Bank

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A lot of people analytics professionals are looking into the drivers of performance in their respective companies. Not too long ago, we undertook a study to establish the drivers of performance for a financial institution. The question was which Human Resources factors in staff influenced the performance of different branches and professionals in the organization. In this article, I will share our most important findings.

We were asked to establish what drives performance of different branches in a financial service group that offered homogenous services to clients. Our focus was on the performance of the 80 branches and the performance of more than 150 Business Development Officers.

As control variables, we included non-human resources factors. The main influencer of profitability was the location of the branch, specifically whether it was located in a residential area or typical shop area.

How HR factors influenced performance

Now on to the HR factors. What surprised us was that branches with a higher staff turnover tended to have more revenue.  Branches with higher number of employees tended to perform better than those with fewer employees. This was hard to explain and went outside of the scope of this study – but would make for an interesting follow-up!

We did find that the number of bank tellers, number of training hours per employee, and the number of people promoted per branch didn’t lead to superior performance. Neither did the level of education of the branch manager; whether the manager had a diploma, first degree or master’s degree was found to be insignificant in predicting branch performance.

This dispels the myths that those who possess higher qualifications perform better than those who have lower qualifications. Schmidt (2016) for example found that years of education (signifying higher qualification) only accounts for less than 1% of the variance in individual performance.

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Training

Given the amount of money organizations spend on training we expected to find a significant relationship between training hours per branch with some of the branch performance indicators. We did not find any significant relationship. This could imply:

  • The training provided was not the right one,
  • The training was not based on the needs of the branch,
  • The training indeed does not influence branch performance.

Again, a further investigation may be required to check why this is the case.

The good news is that we did find a number of personal factors to be highly related to performance.

General Mental Ability

We included General Mental Ability (GMA, also referred to as IQ) of the branch managers in the study to see if this influenced branch performance. In this case, GMA comprised of numerical, verbal and abstract reasoning. The correlation between GMA and operating income of the branch was 0.49!

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We found that as the GMA of the branch managers increases operating income tend to increase. Fitting a regression model we found that GMA explained 24% of the variance in branch operating income!

In the same study, we investigated if the profiles of the business development staff had an influence on sales. Sales were, in this case, defined as deposits and loan advanced by the officers.

For sales staff, we assessed GMA, Critical Thinking, and personality traits using the Big Five personality traits.

Critical Thinking has a positive significant correlation with the number of deposits each business development officer brings to the branch (r=0. 41), and a correlation of r = 0.56 with the total loans amount each business officer advanced to customers.

Personality

The personality dimension Openness to Experience and total loans advanced had a correlation of 0.48.

Openness corresponds to being open-minded. Someone who is high on openness is open to new ideas, new people, and new ways of doing things. Someone who is low in this dimension is closed-minded and does not want to hear any new ideas. Business Development Officers who score high on Openness to Experience tend to bring more business through loan advances to customers.

Conclusion

The results above show that an organization can discover what qualities people in each role must possess in order to drive performance.

While our study focused on people already employed in this organization, it’s very likely that if such profiles are established in advance they can assist greatly in hiring new employees who are guaranteed to deliver given the right working environment.

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The results also support a vast body of literature that shows that cognitive ability (GMA, or IQ) explains most of the variation in individual performance. In a recent study, Schmidt (2016) points out the same and highlights the importance of matching personality to roles. This creates significant value and leads to superior performance. This finding also matches previous literature and shows once again that the best practices in research often translate to real life.

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