In our previous post about Innovation we mentioned:
The challenge for most organizations is not a shortage of transformation projects, but rather a lack of resources, time, and dollars. This is especially true for HR, which is often regarded as a cost center as opposed to a strong business partner. If this sounds familiar, there are things you can do to put your team into an advisor role. The importance is to identify a business problem (even a small one) that you can help provide a solution for without a significant investment. This generally involves an innovation related to people: Can your reporting team learn how to leverage existing technology more effectively so that you can provide more timely reports, even if investment in Tableau or PowerBI may not be in the cards right now? Have you recently conducted a report inventory designed to map reports to organizational goals to ensure that the reporting team is spending their efforts in a way that is meaningful to the overall organization?
In order to understand what HR needs to measure we must first understand the different types of analytics that may be applied in the HR function, the interrelationship between them all and what impact each of these measurements has on business outcome.
Many industry leaders use the terms HR Analytics, People Analytics and Workforce Analytics interchangeably, but while there may be overlap from one to another, and in fact all three, there are subtle differences to each of these terms.
HR analytics: HR analytics specifically deals with the metrics of the HR function, such as time to hire, training expense per employee, and time until promotion. All these metrics are managed exclusively by HR for HR.
People analytics: People analytics, though comfortably used as a synonym for HR analytics, is technically applicable to “people” in general. It can encompass any group of individuals even outside the organization. For instance, the term “people analytics” may be applied to analytics about the customers of an organization and not necessarily only employees.
Workforce analytics: Workforce analytics is an all-encompassing term referring specifically to employees of an organization. It includes on-site employees, remote employees, gig workers, freelancers, consultants, and any other individuals working in various capacities in an organization.
Once you define what issue you are solving for and which type of analytics you use to analyze the situation, you can leverage the relationship of the various types of analytics to start turning HR into a profit center instead of a cost center.
A major factor currently is attrition, which I am sure everyone has heard of “The Great Resignation”, while not all attrition is bad there is an impact to the bottom-line. An example of this, and turning Human Resources into a profit maker, is the use of predictive analytics to retain employees. There are few examples of published ROIs of implemented flight risk models, one of the more famous ones is the consulting firm Nielsen implementing one. They calculated that a 1% decrease in attrition would be a 5 million dollar reduction of business cost. The project identified 120 individuals that were “high risk”, and moved laterally to different positions and reduced attrition to zero for 6 months following. Their final outcome of the project was a 2% decrease in attrition resulting in a 10 million dollar savings. What is notable about the above study is its ability to use many metrics, Attrition/Risk of Loss/HiPo metric to derive true analytics. Reliance on one metric can be dangerous and could leave organizations to derive incomplete or incorrect conclusions. While Neilsen is a massive company, this is implementable in many companies depending on the data available which can be a hurdle that we will be covering in a later blog post.
Similar to the Niesen study above, which combined may HR metrics to derive their predictive analytics tool, use of even more broad metrics can increase overall succe. So what is the relationship between these different types of analytics listed above? Well by definition, HR metrics and Analytics are specifically focused on the HR function while other “people orientated” metrics and analytics such as Workforce Analytics, Vendor Analytics and Customer Analytics are labeled as People Analytics. Essentially, all metrics and analytics that have to do with any group of people an organization must contemplate is folded under the larger umbrella of People Analytics. This become vitally important distinction when organizations begin to develop their “People Analytics” teams as only filling this position with candidates that fit one of the many responsibilities encompassed in People Analytics while leaving the others out often leads the function of People Analytics back down the path of being classified as a cost center and loses its ability to prove itself to be a profit center. Understanding that all people related activities have an influence on the bottom line fosters a more harmonious relationship between People Analytics and the rest of the Organization.
While we can certainly create roles unique for each type of “People” analytics, it is the relationship of each that provides the largest ROI for an organization. When the Organization uses analytics in other parts, they are focused on the useful life of an asset or profitability over time of a product. These types of analytics take into account more than one function, for example, when an organization analyzes profitability of a product that is being manufactured they will look at labor costs, material costs, customer satisfaction and usefulness, customer support resources. In other words, the key to the success of these analytics, and the profitability of the analytics function, is the availability of consuming and interpreting data across many functions. This same principle must be extended to the People Analytics function.
For example, when we look at the cost of obtaining, training and developing new employees we must look more broadly then wage and benefits. We must look at the cost of training an employee, the efficiency of the training process for that employee toward job competency and the ability to enhance our customer’s experience with the organization. These are more than just HR Data sources, but also take into consideration Vendor Analytics (effect of training team) and Customer Analytics (customer satisfaction). Only when we consider all of these different types of “People” analytics can we take the hiring of an employee from a cost-center perspective toward a profit-center perspective.
In order to be successful the People Analytics functions must take into account the HR centric data (what are our current resources) as well as how are those resources are being accepted by our customers (Customer Satisfaction) or how are our resources being perceived by our Vendors (material and service cost savings). Including all of the data is the only change the HR or People Analytics function can make that will be able to prove to the Organization to be a revenue generating function.
Is this impossible? No, as this blog’s mission statements states, we hope to discuss and provide insights, inspire and facilitate growth to any and all that wish to make this their journey and mature their people analytics function. Therefore, we must start somewhere and gaining a better understanding of the different types of People Analytics and how this helps form our understanding of the possible is the first step.
Come back for some more information in our next post about Data Governance!