Human resources has the potential to provide a clearly defined link between a company’s talent and its performance, but only if HR pros can harness the power of data analysis to uncover the insight to have an impact on the business, according to a new report.
“I believe that well thought-out predictive HR analytics could become as important to the CEO as the balance sheet and P&L statement,” says Robert Bolton, a KPMG Advisory partner.
“In other words, by creating a clear ‘line of sight’ between HR activity and your organization’s bottom-line profitability, HR analytics can provide a tangible link between your people strategy and your organization’s performance,” he notes.
But organizations are struggling in many areas:
- Data fragmentation occurs because too many systems exist to record employee activity.
- Reporting too often is not linked to business outcomes and strategic goals; thus, it will be seen as “nice to have” rather than “essential for growth.”
- HR is often missing skills required to carry out the sort of complex statistical analysis required.
The report goes on to note that the increasing prevalence of HR systems – combined with the availability of cloud-based storage – make it easy for companies to maintain all their HR data in one place and to share it and integrate it with other IT systems.
The survey finds that 31% of organizations plan to invest in data analytics during the next three years.
Companies should plan to combine internal data with external data, including:
• Economic indicators and employment availability
• Competitors’ performances
• Core industry metrics of business and HR
• Social media listening about a company and its competitors.
“So, for example, your organization’s HR team may need to move beyond paying attention to only the number of hires this year compared with last year and the data from the annual staff engagement survey – and add to this the data from continuous performance reviews or from what employees past, present and future are saying about their organization on social media platforms,” Bolton adds.
Still, analytics should always begin with the fundamental questions that the business wants answered, the report notes. Such questions may include:
- How and where does diversity drive better business results?
- Which employee compensation and benefits programs boost retention rates?
- Which employees contribute the most to profitability?
- Which roles are the most important for the company’s success?
- Are the right people in those roles?
- Is the company providing them with the right rewards and development opportunities?
- How does HR contribute to the success of the company?
The companies that can formulate the right questions and analyze the best data can boost business performance, according to recent research by the Institute for Corporate Productivity. High-performing organizations (HPOs) take a more calculated approach to HR data, using analysis for strategic, long-term planning twice as much as low-performing organizations (LPOs) (96% compared to 47%), the report finds.
“Not only is the use of data to make business decisions the marker of an astute organization, it underscores that HPOs are focused on far more than simply reporting. HPOs actively seek information that improves the effectiveness of their planning and the performance of their programs and processes,” according to the report. “Low-performing companies do little more than meet minimum requirements necessary for business.”
Sifting through data to turn it into insight requires a specific analytics and interpretative skill set, which more than half of the low-performing companies say they seriously lack, compared to a little more than a third of HPOs.
Moreover, twice as many HPOs report using company-wide standard definitions as a method for guaranteeing data accuracy.
Both HPOs and LPOs check data reliability, but HPOs use automated processes (68% compared to 38%) to a greater extent, which not only reduces errors, but frees up employee time for more pressing tasks.
In HPOs, HR leaders are highly engaged in using analytics to drive performance. But LPOs are happy to simply supply data to an executive team.
More than twice as many HPOs than LPOs give HR leaders workforce data (81% compared to 33%).
“The gap between HPOs and LPOs in mining insights from big data to show how HR initiatives and practices generate hard financial returns is the single-most important difference between the two groups,” the report concludes. “The ability to close this gap – to find and use data that can show the impact of HR programs – is one sure way that LPOs can become HPOs.”
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