HR analytics is a hot topic these days. With new conferences, books, and software emerging at a dizzying pace, it’s easy to lose sight of what’s really important in this realm—the reasons why analytics has become so important in HR. In a nutshell, the increased attention on analytics is the result of both necessity and opportunity.
Necessity arises from the growing centrality of human capital management as an essential organizational core competence. Whereas 35 years ago “intangible assets” accounted for only 9 percent of value creation, today intangibles account for 65 percent of value. Those intangibles? They’re created by people.
- Opportunity arises from the growing availability of readily accessible data on virtually every aspect of the management and development of people. This is data that, with some analytic ingenuity and the assistance of increasingly powerful and accessible software applications, can be transformed into valuable, actionable insights and intelligence.
What Is HR Analytics?
HR analytics is the application of a methodology and integrated process for improving the quality of people-related decisions in order to improve individual and organizational performance. Although HR analytics relies on statistical tools and analysis, its most successful form involves much more than that. At a minimum, analytics require high-quality data, well-chosen targets, talented analysts, leadership, as well as broad-based agreement that analytics is a legitimate and helpful way to improve performance.
HR analytics involves both descriptive components, such as headcount, time to hire, workforce demographics, and turnover. It also includes predictive components—seeking to pinpoint those levers that could be pulled to drive better business outcomes. Descriptive HR data is typically put into context by using external benchmarking data. Predictive HR analytics, on the other hand, identifies the unique aspects of an organization’s work, learning and leadership environments that drive business outcomes. This creates insights that cannot be obtained through traditional benchmarking.
The “How To” of HR Analytics
The statistical techniques deployed in HR analytics run the gamut from the very simple (calculating the average value of a variable) to the complex (multivariate regressions, factor analysis, simultaneous equations, and neural networks). In truth, though, we have found that the importance of the problem being analyzed is often inversely related to the sophistication of the statistics available. The reality is that the most advanced statistical methods need plenty of comparable units for analysis. As a result, they’re much less likely to work on big questions, such as “How do we become more innovative?”
Often answering the biggest questions may depend on more basic statistical techniques. So don’t shy away from comparison of means or correlations just because other methods seem to look more impressive.
When to Use HR Analytics
HR analytics is the go-to approach whenever leaders need accurate statistics or fact-based predictions in order to make better business decisions. In other words, there’s a role for HR analytics in every aspect of the HR function, including recruiting, onboarding, training, development, succession planning, retention, engagement, compensation, and benefits.
In a growing number of organizations, this analytic approach is beginning to permeate every aspect of the HR function. To get your juices flowing on this, take a look at “100 Questions You Can Answer With HR Analytics.”
Although many are tempted to use HR analytics to “prove the value of HR,” our advice is not to go down this path since it immediately calls into question the credibility of any findings or recommendations that emerge. In short, if executives believe the HR function is embarking on an analytics project to justify itself or its programs, any results will be viewed with suspicion—even if the analysis is done well.
Of course, in the end, a well-designed and well-executed HR analytics project can still underscore the value of HR. By establishing systems and methodologies for understanding and linking measures on the people side of the business to key performance indicators, the potential for identifying how HR policies, procedures, systems, and interventions drive organizational performance is greatly enhanced. But at the same time, this process may reveal deficiencies in an organization’s current HR strategies and programs.
Bottom line: Pursuing HR analytics takes some courage. It brings a new accountability to HR, which many leading-edge HR practitioners welcome. It’s a central part of earning HR’s long-sought “seat at the table.”