HR ANALYTICS
Introduction
Of all the departments in an organization, the Human Resource (HR) department may have the least popular reputation.
This has two reasons. First of all, they are like a doctor: you’d rather never need one. When the HR manager calls you and asks to come by their office, it’s likely that there’s something bad about to happen. You may get reprimanded, put on notice, or even fired. If it was good news, like getting a promotion, your manager would tell you. Not HR.
Second, HR is regarded as soft. Fluffy-duddy. Old-fashioned. A lot of the work in HR is based on ‘gut feeling’. We’re doing things a certain way because we’ve always done it that way. HR doesn’t have a reputation of bringing in the big bucks or playing a numbers game like sales. HR also struggles to quantify and measure its success, as marketing and finance do.
HR analytics changes all of this. A lot of the challenges we just described can be resolved by becoming more data-driven and analytical savvy.
Example questions include:
- 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?
These questions can only be answered using data. Most HR professionals can easily answer the first question. However, answering the second question is harder.
To answer this second question, you would need to combine two different data sources: your Human Resources Information System (HRIS) and your Performance Management System.
To answer the third question, you would need even more data and extensively analyze it as well.
HR departments have a tradition of collecting vast amounts of HR data. Unfortunately, this data often remains unused. As soon as organizations start to analyze their people problems by using this data, they are engaged in HR analytics.
HR analytics in literature
Because people analytics is a fairly novel topic, it is still mostly unexplored in the scientific literature. The best known scientific definition of HR analytics is by Heuvel & Bondarouk. According to them, HR analytics is the systematic identification and quantification of the people drivers of business outcomes (Heuvel & Bondarouk, 2016).
In other words, it is a data-driven approach toward Human Resources Management.
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 characterizes HR analytics is in line with this development.
By using people 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.
This learning bite gives a brief explanation of People Analytics
By the way, HR analytics is 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 revolutionized the field of marketing, HR analytics is changing HR. It enables HR 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 today’s 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 to become more involved in decision-making on a strategic level. The picture below shows how this works in practice.
HR data sources are combined, cleaned, and used for reporting and people analytics purposes
A few examples of People Analytics
To get started with people 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 engagement 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 & selection procedures and decisions.
How to get started with people analytics
Organizations 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 organizational outcomes. This way analytics helps companies track absenteeism, turnover, burnout, performance and much more.
An even better way to get started is following a professional course in HR analytics. In the HR analytics academy, we offer three courses.
- The HR analytics lead course. This course is for people who are heading an analytics department and teaches all the skills and tools needed to do this successfully.
- The HR Analyst course. This course is for HR professionals who want to learn how to work with HR data using simple tools like Excel and PowerBI.
- The strategic HR metrics course. Metrics are a starting point for analytics. If you think you’re not ready for analytics because you’re not yet working with the right metrics, this is the course for you.
Analytics makes HR (even more) exciting. Its insights are input for strategic decisions and optimize day-to-day business processes.
In addition, 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 employees 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.
People analytics only adds value when it is driven by a business question – and thus drives business results
After asking the right question, you have to select data from your different systems. This data is then combined, cleaned and analyzed. This analysis leads to insights.
Not all insights are equally interesting. 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 People Analytics shape the business?
You can imagine that HR analytics holds enormous value for an organization. These examples are only the beginning. Indeed, analytics enables companies to measure the business impact of people policies.
By applying complex statistical analyses, HR can predict the future of the workforce. This enables managers to measure the financial impact of Human Resource practices. To read more about the tools used for these analyses, check our overview on the top HR analytics tools.
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.
Common topics in HR analytics
The aforementioned examples 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”.
People Analytics Factsheet
To wrap all the information up, we’ve created an infographic with the latest research on people analytics. It contains the major challenges that the field is facing in terms of skills, data quality, data integration, and reporting. To download the full infographic as a PDF, click the link.
FAQ
What is people analytics?
People analytics is a data-driven approach to managing people at work. People analytics, also known as HR analytics, workforce analytics, or talent analytics, revolves around analyzing people problems using data to answer critical questions about your organization. This enables better and data-driven decision-making.
What are common data sources for HR analytics?
Common data sources include internal data like demographic employee data, payroll data, social network data, performance data, and engagement data. External data sources can include labor market data, population data, LinkedIn data, and much more. Any data that’s relevant for the specific project can be used.
What skills are required to do people analytics?
Relevant skills for people analytics include business consulting to identify critical issues, analytical skills to run the analysis, stakeholder management to bring everyone together and enable the people analytics project, and storytelling and visualization in order to communicate effectively with the business and share results.