Human Capital Analytics as a Decision Imperative
By Sanjay Joshi
What’s common between journalists and HR professionals? Generally, they both hate math! One becomes a journalist being good with words while being an HR professional requires not arithmetic but good people management skills. There’s always been a certain element of number crunching to everything the HR department does, but the recent focus on HR metrics has increased it by the power of 10.
Waves of HR (R) evolution
The growing intricacies of the global economy and the workforce call for a new kind of HR – one where HR professionals ask informed questions about business issues, design clear choices and alternate solutions for business leaders and eventually run more business-focused HR operations, which are measurable.
The past decade evidences that HR has made noticeable strides in employing process improvements and technology to minimize costs and drive higher operational efficiencies. However, as a profession, HR continues to battle issues of credibility and verifiable strategic impact on business. Even so human capital function today is ideally positioned to render long-term competitive advantage to the business through people assets.
Various forms of intangible human capital likeexpertise, employer brand, customer relationships, business processes and intellectual property are highly complex investments. Companies that understand what is affecting their workforce, how investments impact it and how various changes can be communicated effectively get the most out of their human capital.
Starting with the end result in mind, the intent of HR Analytics is to facilitate smarter, better decisions for business while on the people-side of business, analytics indicates moving from guesswork to actionable business intelligence. It signifies moving from assumptions and conventional paths of wisdom to true analysis that leads to actionable insights, clarity, and smarter business outcomes.In most organizations, the people side of business suffers from a chronic lack of focus and underinvestment, which leads to a lack of urgency to get this fundamental issue right.The essential problem lies in measuring people as costs and not actually measuring them as assets and true analysis really helps address this problem.
There is a growing need for HR professionals to understand how people management initiatives lend value to business to be able to augment ones that generate utmost value. This necessitates HR Analytics – a completely new class of systems that gathers not just HR-specific but organization-wide data, including client, supplier and financial for consideration, analysis and presentation. In the words of Dave Ulrich, HR is effortlessly ‘becoming more outside in by focusing more and adapting to contexts, stakeholders, and strategies.’
Road to Big Five Metrics
A number of organizations in recent years have resorted to much downsizing and restructuring without giving much as a passing thought to the ideal size of a workforce. Either they don’t have the right set of metrics to assess the workforce or go about measuring everything not knowing which numbers actually make a difference. A good workforce strategy subsists on certain vital metrics to interpret challenges and changes stemming from economic growth cycles and crises.
Stephen Moore, M.D. of HR consultancy firm Optimum Performance, at the HR Measurement and KPIs forum held in Sydney in February 2012 outlined that human capital metrics should focus on the four areas of workforce management, workforce planning, workforce benchmarking, and HR function effectiveness.
Ranging from engagement, retention, payroll, compensation, benefits, performance, training, and more, there is a wide range of human capital metrics available to a company. However, some metrics are more important than others depending on a company’s objectives and strategy. It helps to consider the following four questions before implementing workforce analytics:
- What metrics are most significant to a company?
- What data needs to be collected and tracked to analyze chosen metrics?
- How will the data be examined and benchmarked?
- How will the final outcome be used for planning, developing, and improving HR interventions?
In an article titled Maximizing the Impact and Effectiveness of HR Analytics to Drive Business Outcomes, authors Scott Mondore, Shane Douthitt and Marisa Carson have provided a practical roadmap for conducting HR Analytics:
According to a study by Human Capital Institute, the crucial five metrics should include total cost of workforce, management span of control, high-performer turnover rate, career path ratio and talent management index. Visier, a top workforce analytics solutions company, in its September 2012 study emphasizes measuring a different set of five indicators namely, critical talent retention, recruiting effectiveness, productivity, compensation and pay equity, and performance management. KPMG, however, recommends a more holistic profiling manifest in its five people agenda dimensions of cost, capacity, capability, compliance, and connections.
Each organization would need a different set of HR metrics, yet the emphasis should always be on developing an instrument to enable well-timed and high quality decision-making. The metrics must be wisely chosen and prioritized in keeping with the strategy, stakeholders, products/services and marketplace of an organization to create useful insight from information.
Correlating Metrics to Human Capital Issues
The task of identifying appropriate set of metrics inevitably leads to organized data collection and focused analysis to uncover a range of workforce issues like:
- Need of succession pool for senior leadership cadres
- Rise of workforce absenteeism
- Rise of voluntary turnover of in-house resources
- Attrition of Hi-performers
- Penetration rate of development programs
- Rate of Internal hires
- Ramp-up of contingent human capital
- Rise of aging workforce
- Absence of staffing cost control due to pay creep
Carefully chosen organizational metrics can help divulge root cause of underlying manpower issues. For instance, is growing employee turnover rate a sign of an organization-wide issue? Or, is it possible to further drill down into that metric to reveal that this trend is characteristic of just one particular geographic locale or a business unit? Culling out relevant information, HR experts can then examine whether it is an emerging problem affective the entire organization or only one particular region or whether this new trend is an expected change arising out of a certain event or policy.
Using Analytics to Glory
The strength and effectiveness of a good human capital analytics system depends not so much on technology but on its being flexible, user-friendly, practical and ability to generate timely and accurate information. Talent Analytics at Google is a niche function consisting of a director and a team of 30 researchers, analysts and consultants to determine capabilities and behaviors linked to high performance and create a model for boosting retention rate.
Webdunia, first Indian language online content company introduced a sophisticated, enterprise-wide integrated HR Management system for automating administrative and employee functions like recruitment, leave and attendance tracking, user management and performance appraisal. This has greatly enhanced the ability of decision-makers to access and use timely and accurate data to improve the efficiency and effectiveness of the workforce.
Over the years, Tata Consultancy Services BPO has designed a predictive approach to define the eligibility score and recruitment mix to be hired for various types of processes, which has led to overall increase in process productivity scores and customer satisfaction scores. In addition, its proprietary tool iNTRASCOPE facilitates matching up the demand and supply of talent internally has resulted in decreased attrition rate, increased percentage of internal career progression, and upped revenue to employee-cost ratio.
Beyond the obvious significance of ‘centralized data as a critical enabler,’ some of the key organizational challenges in using analytics for value creation include:
- Data credibility issues, imaginably caused by insufficient trained manpower, privacy and security and privacy concerns, employee-given details for some of the data,old data, financial and legal constraints, etc.
- Absence of incentives for other stakeholders to share data across functions
- Managing data from multiple geographies
- Restricted access to data for slicing and analysis
- Customizing and communicating outcomes to different levels of the organization
Organizations that successfully employ HR analytics focus on people factor of change and view their workforce as a rich mine of collective data for making sound decisions about talent. The use ofrelevant human capital metrics and predictive analytics for planning, managing, motivating and retaining employees doubtless renders hard-to-replicate business advantage. HR can finally earn a seat at the table by making data driven workforce decisions through improving talent retention, finding opportunities for cost savings and upping human capital efficiencies and productivity.
Sanjay Joshi is an Editor at SHRM India.