The question “what is HR analytics?” is asked by a lot of HR professionals who want to get started with analytics. In this article, we will explain what HR analytics is and how it will shape businesses in the future.
Human Resource analytics is about analysing an organisations’ people problems. For example, can you answer the following questions about your organisation?
- How high is your annual employee turnover?
- How much of your employee turnover consists of regretted loss?
- Do you know which employees will be the most likely to leave your company within a year?
You can only answer these questions when you use HR data. Most HR professionals can quickly answer the first question. However, answering the second question is harder.
To answer the second question, you’d need to combine two different data sources. To respond to the third one, you’d need to analyse your HR data.
HR departments have long been collecting vast amounts of HR data. Unfortunately, this data often remains unused. As soon as organisations start to analyse their people problems by using this information, they are engaged in HR analytics.
The scientific definition of HR analytics
What is the scientific definition of HR analytics? HR analytics is defined as “the systematic identification and quantification of the people drivers of business outcomes” (Heuvel & Bondarouk, 2016).
In other words, it is a data-driven approach towards HR.
Over the past 100 years, Human Resource Management has changed. It has moved from an operational discipline towards a more strategic discipline. The popularity of the term Strategic Human Resource Management (SHRM) exemplifies this. The data-driven approach that characterises HR analytics is in line with this development.
By using HR analytics, you don’t have to rely on gut feeling anymore. Analytics enables HR professionals to make data-driven decisions. Furthermore, analytics helps to test the effectiveness of HR policies and different interventions.
By the way, HR analytics is very similar to people analytics, but there are some subtle differences in how the terms are used.
How HR analytics helps Human Resource Management
Like marketing analytics has changed the field of marketing, HR analytics is changing HRM. It enables HR managers to:
- Make better decisions using data
- Create a business case for HR interventions
- Test the effectiveness of these interventions
- Move from an operational partner to a tactical, or even strategic partner
Today, the majority of HR departments focus on reporting employee data. This doesn’t suffice in the current data-driven economy.
Just keeping records is often insufficient to add strategic value. In the words of Carly Fiorina: “The goal is to turn data into information and information into insight”. This also applies to HR.
Doing this enables HR managers to become more involved in decision-making on a strategic level.
A few examples
To get started with HR analytics, you need to combine data from different HR systems. Say you want to measure the impact of employee engagement on financial performance. To measure this relationship, you need to combine your annual engagement survey with your performance data.
This way you can calculate the impact of participation on the financial performance of different stores and departments.
Key HR areas will change based on the insights gained from HR analytics. Functions like recruitment, performance management and learning & development will change.
Imagine that you can calculate the business impact of your learning and development budget! Or imagine that you can predict which new hires will become your highest performers in two years or that you can predict which new hires will leave your company in the first year. Having this information will change your hiring and selection procedures and decisions.
If you want to read more about how data can change hiring practices, check out Laszlo Bock’s book ‘Work Rules’. Laszlo Bock was the Senior VP of People Operations at Google. In his book, he describes how hiring practices changed at Google after they started to analyse their recruitment data.
How to get started with HR analytics
Organisations usually start by asking simple questions. An example is: “Which employees are my high potentials?” You can answer this question using quite simple statistics. Doing this helps to quantify the relationships between people’s abilities and organisational outcomes. This way analytics helps company’s track absenteeism, turnover, burnout, performance and much more.
Analytics makes HR (even more) exciting. Its insights are input for strategic decisions and optimise day-to-day business processes.
Also, if you know what makes your employees tick, you can create a better work environment and identify future leaders. Imagine that you can predict which workers are most likely to leave the company. This information helps your succession management and benefits strategic workforce planning. A notable example of a company doing this is Credit Suisse.
After asking the right question, you have to select data from your different systems. This data is then combined, cleaned and analysed. This analysis leads to insights.
Not all ideas are equally impressive. That’s why you should ask questions about things you can change. For example, you can’t change an employee’s gender. However, you do have influence over your management styles and engagement levels. Asking the right questions leads to actionable insights.
How does HR analytics shape the business?
You can imagine that HR analytics holds an enormous value for an organisation. These examples are only the beginning. Indeed, analytics enables companies to measure the business impact of people policies.
By applying sophisticated statistical analyses, HR professionals can predict the future of the workforce. This enables managers to measure the financial implications of Human Resource practices.
Measuring the impact of HR on bottom line performance is the “holy grail” of HR analytics (Lawler III, Levenson & Boudreau, 2004). This is often done by calculating a Return on Investment (ROI). It is the most powerful way for HR to increase its strategic influence.
Examples mentioned above have an impact on both the cost and the revenue side of the business.
Knowing the impact of HR policies will also help HR to become a strategic partner and get rid of its ‘soft’ image. It helps HR to align its strategy with business goals and to quantify the value it adds to the business. It takes the guess-work out of HR.
So, how do we at Analytics in HR define HR analytics? We think it is about identifying the people-related drivers of business performance. It takes the guesswork out of employee management and is, therefore, the future of HR. Or, to put it in the words of Edwards Deming: “Without data, you’re just another person with an opinion”.
Source: Analytics in HR