The Impact of People Analytics and the Growing Skills Gap

Everyone who is using people analytics in their work is aware that there is a divide between people who get people analytics and those who lag behind. Whenever we train HRBPs, we see that one third are very excited about people analytics and gets it, one third are interested in learning more, and one third are fighting it tooth and nail.

The questions I want to answer in this article are: Is there a skill gap in People Analytics, and what is its impact? I found that the numbers were clearer than I thought – and the results surprised me.

People analytics skills in organizations

Digital is becoming increasingly important for HR. Lagging behind in the digital trend is already hurting the competitive advantage of companies. A joint research report by DDI, the Corporate Research Forum (CRF) and EY reports that digital pioneers are more effective in times of uncertainty, navigate through complexity easier, and as a result act much more decisively.

One of the key ways to pioneer digital is by investing in people analytics, defined as a data-driven approach to managing people at work (Gal, Jensen & Stein, 2017). We’re seeing similar astonishing numbers for this field.

According to Deloitte’s 2017 Human Capital Trends report, 71% of companies see people analytics as a high priority. However, only 9% believes they have a good understanding of which talent dimension drives performance in their organizations.

What this means in practice is that organizations work with their HR data and report on it at a basic level. However, getting real value from the data by leveraging analytics to improve decision making, is something that these organizations are failing at.

This is emphasized in a research report by Cornell University, titled State of HR Analytics. This report shows that HR data is used for basic reporting purposes in all organizations. On top of this, 80% of respondents indicated that their organization reports key HR data in dashboards or scorecards. However, only 27% felt they had a strong team of analytics talent who could execute HR analytics projects.

In addition, the report states that front line HR generalists fail to understand the value of HR analytics. Only 33% thought they would.

Now this is not the most shocking statistic. The untapped potential of people analytics is best shown in a 2017 study by the CRF, authored by Levenson and Pillans. In this study, only 1 % strongly agrees with the statement that “HR in my organization is good at analyzing a wide range of both HR and business data (from a range of different functions) before making decisions”.

Given the fact that 69% of large organizations now have a people analytics team (CRF, 2017), the question is: what are all these organizations missing out on?

The value of people analytics when done right

Analytics can provide tremendous value to an organization. The more general business analytics has a return on investment of 1300% (Nucleus Research, 2014). Research by Visier (2018) shows that organizations with an advanced people analytics function outperform those with an emerging one with 56% higher profit margins and a 22% higher return on asset.

This is in line with the more traditional HRM research that shows that investments in advanced HR practices, known as High-Performance Work Systems (HPWS), help organizations achieve better financial performance (e.g. Shin & Konrad, 2014; Wright, Gardner & Moynihan, 2006; Huselid & Becker, 1996). Huselid & Becker, two of the most influential HR researchers of all time, estimate that a one standard deviation increase in their measure of HPWS raises the market value of the corporation by approximately $15,000 per employee.

There is also more anecdotal evidence of the value of People Analytics in the form of case studies. At Expedia, for example, they built a predictive model that included 200 attributes to predict employee turnover. The insights from this model, combined with good management practices, resulted in a drop of attrition in 2-3% over an 18 month period, saving the company between $8,000,000 to $10,000,000 (CRF, 2017).

Nielsen has reported that a similar approach decreased attrition by 2 percentage points, which translated into a cost reduction of more than $10,000,000 (Guenole, Ferrar & Feinzig, 2017). A third case study published in the Wall Street Journal, estimated that Credit Suisse saved between $75,000,000 and $100,000,000 with this approach.

Besides using analytics to cut costs, it has also been used to generate profit. An example is a case study by Best Buy, published in HBR, where a 0.1% increase in engagement among employees resulted in a $100,000 increase in a single store’s annual operating income.

The untapped potential of people analytics

When we summarize the above, we see that there is a tremendous added value when people analytics is done right. However, much of this value is left on the table because of a lack of skills.

The attentive reader has already noticed that there are two skill gaps:

• A gap in people analytics specific skills (only 27% of respondents believed they had a strong people analytics team)
• A gap for HR generalists to understand the value of data and become data-driven.

This last point is something I want to emphasize with a picture from a 2017 CIPD research report. In this report, respondents were asked: “how frequently do you use these types of evidence to inform business decisions?”

As you can see below, most respondents used either their own personal experience, or the experience of senior colleague. Only at the very bottom of the list do we see that management literature or results from scientific research are used to inform business decisions.

I started this article with the statement that companies are becoming more digital and that the companies which are failing to do so are at a competitive disadvantage. People analytics is an excellent example of this. When done right, it offers tremendous value. However, it does require the right skills and the right, evidence-based mindset for the broader HR population in order to do and implement it well.

Very recently, we made a short movie about the rise of data and the skills gap in HR. Check it out below!

Are you willing to spread the word?

I think that’s the way forward. Only if the HR professionals in our organizations become truly comfortable with data and data-driven, evidence based work, will we as HR professionals start to reap the benefits.

That’s where you come in. We need your help in expanding the acceptance of people analytics throughout HR. If you have a colleague who is not convinced of the need for more data-driven decision-making within HR, please like and share this article and the video.