Does People Analytics Work?

Mike West, Author of People Analytics For Dummies

People often ask, “Does people analytics work?” These are smart people, who genuinely would like a straight answer to an honest question.

“Half the money I spend on advertising is wasted; the trouble is, I don't know which half.” - Henry Ford, Lord Lever, John Wanamaker?

I will sometimes start a conversation about people analytics with something like this: did you know that in the United States alone, companies currently spend about 7 trillion on employees in Payroll*? Unfortunately having worked in HR for over 15 years I can tell you that more often than not decisions affecting people are : a.) coincidental b.) arbitrary, c.) biased or d.) political (by this I mean rooted in conflict – the expression of personal or group advantages and disadvantages). None of these imply a reason that is good for doing business, or people or the economy. My experience has been that how, where, when and why money is spent matters and results will vary on how well or poorly money is invested. My experience has also been that when I look at HR data I always find things were/are unexpected the implications of which have some great value. Always, not a single employer I have worked with in a +15 year career in HR where that did not occur.

(*It is probably over 10 trillion when you include the cost of Benefits and Perks)

Before you can say whether or not People Analytics’ works, you need to know what its job is. We can gather from the name, People Analytics is the application of analysis to people. O.k. but what’s the goal of People Analytics? How can you say whether it works if you don’t know what it’s supposed to achieve?

In prior People Analytics Q/A posts I attempted a definition - I was looking for a unique combination of words to express the essence of a complex concept simply without missing what is important and different about it. This is what I came up with: People Analytics is the systematic application of behavioral science and statistics to Human Resource Management to achieve probability derived business advantages. I chose these words deliberately but admittedly this definition does not roll off the tongue in casual conversation. So let’s take a step back and talk about it.

More simply put, People Analytics is the application of analysis to people in a business. For the sake of discussion we are going to put "people in a business" in the realm of Human Resources. To understand People Analytics lets first understand what is the job of HR? 

Most people think of HR as a series of low-level administrative activities: record-keeping, recruiting, benefits administration or as the legislation compliance arm of the government that sits in your organization. There is an element of truth to this. No organization could exist for very long without some attention to those things, however you think this is all HR is you simply have not been exposed to HR in a successful, large, modern organization.

The need for a dedicated HR function, historically, and for any given organization, occurs when we start to go from something small – where you can know everybody and everything that is going on in an organization - to something big – when it is no longer possible for one person to know everybody and everything that is going on. If at some point no one person can see clearly what is actually going on the organization will cycle into chaos. The reaction to genuine chaos now and forever will be, “My God we need to get control over this.” e.g. No business ever starts out by saying, "I want to build an organization with a really great Human Resource function", never-the-less, successful organizations inevitably  arrive at, "We need a really great Human Resource function". At its essence HR is about controlling the chaos of organization growth. Control doesn’t sound very exciting. A more exciting way of framing it is,

if your investors wishes comes true (growth), then Human Resource Management is your reward.

HR is a necessity as a consequence of growth, and growth is the primary way businesses derive value for shareholders over the long run, then it might be accurate to describe HR as both a consequence and a cause. Yes, just as eggs and chickens go, so goes HR and business. It is a great mystery, however in the case Kentucky Fried Chicken I will abdicate that I think the fried chicken came first, and then HR came along later. If someone else came along and wanted to create a large scale catering company featuring Kentucky Fried Chicken then I give that to HR.

The idea that having an HR function may be a good thing for an organization begins with the need to create efficient processes to expand the business and eventually lands on an appreciation for the common elements of what employees and management expect out of an organization.

"All a company is, is a group of people that are gathered together to create a product or service."

- Elon Musk

Tending to The Employment Relationship

The main thing everybody in an organization has in common is that we are all getting paid– that makes it a job - otherwise we probably wouldn’t be together 8 hours per day, 5 days per week, 50 (+/-2) weeks per year or whatever you do. You may like each other but you probably don’t like each other that much!

The other thing we all have in common is that we are at this job voluntarily – beyond agreement that the dissolution of direct slavery is a good thing – we can all thankfully acknowledge labor markets are competitive and therefore opportunities abound. There are two sides to the equation and both sides make choices.

The relationship between an employee and an employer is a rich series of interactions that can be understood better by applying many different lenses (Psychology, Sociology, Social Psychology, Labor Economics, Anthropology, etc.) however these interactions boil down to simple decisions and consequences. 

Decisions are at the crux of interactions. The leadership of an organization can decide to treat people however they want to but they don’t get to decide if people come or go as a consequence – the people decide this. The people also decide the level of creativity, personal risk-taking and effort they are willing to exert on behalf of an organization.

In the short term some of these interactions may not appear to matter - in the long-term they always do. Achieving clarity in decisions to achieve desired outcomes is the point of management. HR today is fighting for a seat at the business table but the truth is that HR related issues have been a silent participant all along.

Strategic Human Resource Management

As we get the basic blocking and tackling of organization under control, modern Human Resource Management extends into the macro-concerns of the organization regarding structure, quality of talent, culture, values, matching resources to future needs and other longer-term people issues related to the organization’s plans – we call this group of activities Strategic Human Resource Management.

Strategic HRM gives direction on how to build the foundation for strategic advantage by creating an effective organizational structure and design, employee value proposition that is attractive to talented people, systems thinking problem diagnosis, and preparing an organization for a changing landscape, which include new competition, downturns and mergers & acquisitions. Sustainability, diversity, corporate social responsibility, culture and communication also fit within the ambit of Strategic HRM by reflecting chosen organizational values and their expression in business decision-making. 

If that two paragraph description of Strategic HRM sounds like something straight out of a textbook, that is because it probably was. Loose credit to the Society of Human Resource Management for this. You and I both wish I would have a better mental firewall. 

Basically, I’m saying that if you are doing it right the purpose of HR is not really about a handful of specific activities or compliance; it is about enabling business growth and as you do that it about designing an organization for sustainable competitive advantage. 

Good HR should help extend the life of organizations by helping them extend the reach of what they do or grow better at what they do over time.

Here is a brutal fact : over the long run most organizations fail

If over the long run most organizations fail – are you now getting a clear picture of how good of a job we are do with this strategic HRM stuff?

Then again, maybe it is not HR’s fault, maybe HR had great things to say that were not heard.

What is the goal of People Analytics?

In 3 words : do people better.

In more words: help leaders and employees make better decisions together – reinforcing organization based competitive advantages - which result in sustained organization growth over time.

What is the job of People Analytics? 

People Analytics provides a means to see and explain what is going on inside of an organization. People Analytics provides a framework to give HR’s disjointed practices a reason, coherence and direction. People Analytics gives HR a powerful language to communicate with others.

Does People Analytics Work? 

Here is an interesting 18 minute macro way of answering this question in a Ted Talk : The Surprising Math of Cities and Corporations : by Geoffrey West

Or you can formulate your own answer in less time than that just thinking about the following questions…

What is it worth to you to find out what characteristics in a manager lead to a statistically better performing software engineering or sales team?

What is the ROI of using math and science to identify a poor manager that un-checked could influence the organization to do things that result in devastating class action litigation against your company? 

How much more likely is a person to be motivated to react to criticism of their management style when presented with data that “We asked the same questions of all managers and you are in the bottom 25th percentile on these measures – please explain”? Could that be useful and worth at least as much as you pay this person, whatever that may be?

If your organization believes that the best hiring criteria for success in your organization is intelligence, represented by an Ivy League education, believing they will be more successful, and you have a way to find out that is not actually true, what is that information worth to you? How much additional do you pay for a graduate of an Ivy League Education x number of employees over time? Further, what additional costs to business performance about being wrong about what makes people successful? Not to mention, what possible business drags and penalties will accumulate when your organization grows less statistically representative of its community as a result of a faulty premise?

What is it worth to you to discover that a many million-dollar Benefit program actually does not relate at all to retain employees - when that was the primary reason cited for implementing that program?

What is it worth to you, to discover that a 10 million dollar benefits program now will result in a 100 million benefits program later if your organization continues to grow on the same track? What is it worth to you to avoid the consequence to commitment and morale of offering a benefit and not being able to deliver on it or slowly taking it back over time? Does the current gain in morale from implementing this program exceed the future consequences of retracting it? What is the ratio of value for the organization?

Based on my experience with the question above with real organization data, the question “Does People Analytics Work?” becomes absurd. It is not even close. There is no question that it works.

Would you dream of asking a mathematician, “Does math work?” or asking a scientist, “Does science work?”, or an engineer, “Does engineering work?” or a doctor, “Does medicine work?”

Someday I hope we will move past this question for People Analytics too.

Question and Answers

“What is People Analytics?”, September 30, 2015, LinkedIn.

“What is NOT People Analytics?”, October 3, 2015, LinkedIn.

“Why People Analytics?”, October 6, 2015, LinkedIn.

“What is the History of People Analytics?”, October 9, 2015, LinkedIn.

“What are the Key Questions of People Analytics?”, October 22, 2015, LinkedIn.

“What is the Actual Work of People Analytics?”, November 8, 2015, LinkedIn.

“Does People Analytics Work?”, February 26, 2016, LinkedIn.

More

Find more of my writing here: Index of my writing on people analytics at PeopleAnalyst

Connect with me on LinkedIn here: https://www.dhirubhai.net/in/michaelcwest

Check out the People Analytics Community here: https://www.dhirubhai.net/groups/6663060

Buy my book on Amazon here: People Analytics For Dummies , directly from the publisher (Wiley) here: People Analytics for Dummies , or from other places where books are sold.