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Human resources professionals have long collected data, amassing and filing employee personnel information, salary rates, benefits, tenure and retirement information, and performance ratings. But the data game is growing—it is no longer confined to a filing cabinet in some back office. Big data has revolutionized business sectors from marketing to finance. Now it is HR’s turn.
“Big data has revolutionized business sectors from marketing to finance. Now it is HR’s turn”
HR has historically been undervalued compared to revenue-generating business sectors. But the people who make up a business make or break that business. And CEOs know that. In fact, according to an IBM study published in the Harvard Business Review, 71 percent of CEOs surveyed believe that human capital is the top contributing factor for sustained economic growth. Adopting HR analytics helps a company recruit, hire, and manage top talent better. Similar to a marketing team using big data to predict customer patterns and behavior, HR departments use people analytics to better understand their own workforce. In 2016, businesses that fail to incorporate big data into their talent management and employee engagement strategies will become legacy companies.
“HR analytics” or “people analytics” is the use of workforce metrics—data about every aspect of an employee’s background, education, gender, age, race, performance markers, and even things like personality traits—to glean information about the talent pool and even predict workforce behavior. HR’s main focus must continue to be talent management—hiring the best, retaining the best, and nurturing and developing the best talent out there. But people analytics can help HR determine what makes a candidate a great fit for a particular job, and is particularly good at pinpointing the less obvious traits. Retention and productivity can also be measured through analytics, and tweaked when need be. Big data helps HR departments determine where there are talent shortages and staffing peaks, and then take action accordingly. Google, for example, analyzed employee data and performance metrics to discover that certain personality traits—and not an Ivy League education—mattered most in hiring and retaining top talent. They also discovered that after the fourth interview, the company learned no important new information about a potential hire, making those additional interviews a waste of time and resources. They changed their hiring practices as a result.
Besides improving the quality of hires, HR analytics can be used to better predict employee retention, boost employee engagement, profile high performers, and predict ethics and compliance issues. Instead of constantly reacting, the data can be used to forecast behavior and situations and then allow the company proactively to enact new policies and procedures to improve its work environment and bottom line. The typical company spends between 30 and 60 percent of their revenue on payroll, benefits, and other human costs. Forecasting outcomes for certain HR functions like hiring, training, assessment, and retention, is all about getting the most return on investment. According to a study from MIT Center for Digital Business, organizations driven by data-based decision-making had 4 percent higher productivity rates and 6 percent higher profits.
Several major software companies have already developed platforms to house this type of big data, and even more will jump in the game this year. In PwC’s 2015 annual CEO survey, 86 percent of CEO respondents said that creating and maturing their people analytics function was of strategic importance in the next 1–3 years.
As more companies adopt HR analytics strategies, the field of HR itself is being impacted. One major trend for 2016 will be the rise of the HR analyst. Many traditional HR leaders are not comfortable with big data and analysis. But like with luddites in other business sectors, the motto in HR should be: adopt analytics or retire.
A technology background and facility with math and data analysis will become prerequisites for CHRO and talent leader recruits. And in the next few years, HR departments will see major staffing transformations, as those uncomfortable with big data get phased out for millennials and tech-savvy Gen-Xers. At present, only 52 percent of companies have a dedicated HR analytics team, according to PwC’s 2015 HR Technology Survey. Enough said. The second and perhaps most significant trend in HR analytics is toward the use of data from sources outside the traditional realm of HR. When management culls data from HR, sales, financials, workforce management, and various operational systems, they can more clearly see the correlation between employee efforts and measurable business outcomes. The more data sources, the wider the implications. For example, financial companies are now using big data to analyze why certain people commit fraud, and how that correlates to background, demographics, environmental factors, hiring issues, personality type and even where the manager sits in relation to that employee. Instead of using gut feeling or intuition, companies can calculate risk using multiple data points from these contributing factors. Predictive analytics in turn helps maximize return on human capital investment and helps companies avoid major risk or even scandal.
In the push for more data, companies are now adopting software and other tools to maximize data collection from employee feedback and surveys, engagement systems, real-time narrative analysis, and computer predictive modeling. They have also started culling external data to add to the mix—from social media, external hiring and demographics, and employment branding. Eventually, what we call HR analytics will likely be called business analytics, because the wider the data sourcing the larger the implications for a company’s bottom line. But beware—your employer will no longer just monitor your Facebook account. What you post will end up in the cloud-based data system, as well.
This brings us to another analytics trend, and one which is occurring in all realms of business today: the move toward cloud-based systems and heightened employee-employer contact through mobile device apps and social media. I won’t pretend to be a technology expert, but the overall push is to make analytics more user-friendly, fluid as opposed to event-driven, and to increase the amount of data collection and maximize its value. 59 percent of companies surveyed by Deloitte are currently developing mobile apps to make their back office systems easier to use and access by employees. More generally, HR departments have moved away from the formal, once-a-year performance review to a less-formal, ongoing system of employee evaluation. Integrating HR platforms with social media and mobile apps can render this type of review seamless.
While organizations that have adopted HR analytics are utilizing this data for talent management and other traditional HR functions, managers across all levels of an organization should also have access to it to make data-driven decisions. According to a 2015 Sierra-Cedar HR Systems survey, only 19 percent of managers use analytics to support their workforce decisions. That needs to change.
2016 is the year of HR Analytics. Businesses that continue to make critical hiring, management, marketing, financial, or other decisions without consulting and analyzing big data are operating at a handicap. Big data is a part of the game now. Too many companies are playing catch up. They need to hurry.