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Still too few organizations are actively implementing HR analytics capabilities to address complex business and talent needs.
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Among all the challenges we studied this year, people analytics presented the second-biggest overall capability gap for organizations, trailing only the need to build better leadership. (See figure 1 for capability gaps across regions and selected countries).
Why is this issue so prominent? Today, as many companies prove the power of analytics, a new race is under way to gain a competitive advantage by understanding all elements of the workforce.
Google uses analytics to gain insights into the impact of every interview and source of hire.3 Many companies, including Pfizer, AOL, and Facebook, now analyze the factors that correlate with high-performer retention. BP uses analytics to evaluate its training. SAB Miller uses analytics to drive high quality standards across a variety of programs worldwide.
Despite these and other high-profile uses of analytics, our survey confirms that most organizations have been slow to get started. Respondents showed little change in their ratings of their analytics capabilities since last year, and more than half of our respondents rate their organizations weak at scorecarding (figure 2).
Organizations are still new to this discipline, and many suffer from poor data quality, lack of skills, and a weak business case for change.4 While people analytics programs can deliver a high ROI, HR leaders have difficulty building an integrated plan.5 And more than 80 percent of HR professionals score themselves low in their ability to analyze—a troubling fact in an increasingly data-driven field.
As HR analytics teams struggle to build this capability, vendors are starting to fill the gap. Today, nearly every HR software vendor is eager to sell packaged predictive analytics tools, often built right into their talent and HR management software.6
But buying more data-driven HR and talent management software is just the first step—it will take several years for businesses to fully absorb this technology. Companies with leading capabilities in HR and people analytics have been building these capabilities for three years or more.
Where can an organization best apply analytics to improve talent management? Some possible areas include:
Beyond those more common applications, people analytics are beginning to be used in more advanced ways. Many financial services firms, for instance, have turned to analytics to understand and predict ethics and compliance problems. As new government regulations place greater burdens on financial institutions to prevent misconduct, a tool that accurately forecasts which employees are most at risk of committing ethical transgressions offers a critical insight.
Analytics reaches into other exciting areas as well, such as how people learn and progress in their career. Learning management systems vendors now offer new tools that use data to “recommend learning” in the same way as Amazon and Netflix recommend books and movies.
As people analytics takes hold, data-driven decisions will become a common theme across all parts of HR.
The common theme connecting all these applications is simple: They address business issues, not merely HR issues. Connecting these tools to business needs helps build the case for investment in and deployment of analytics.
Companies can move faster on analytics by considering a cross-disciplinary approach. One company created a cross-functional team called “HR Intralytics” to model ways in which the efficiency and effectiveness of its people services could be improved. This team worked with finance and business operations to visualize data across processes, defining the business benefits of improvements to various parts of HR. The output was so compelling to the board of directors that it approved funding for a major transformation—including a dedicated people analytics center of excellence.
As people analytics takes hold, data-driven decisions will become a common theme across all parts of HR. Organizations should invest aggressively in this new discipline, link it to the rest of the business, and reskill their teams to bring data to work in every major people-related decision.
HR leaders at ConAgra Foods are using analytics to calculate and report the total cost of its workforce rather than leaving this important task solely to the finance function. Until recently, the company has struggled to collect accurate data about its workforce. Information was spread across the organization, making it difficult to reconcile. Analytics solutions allow the company to gain better insights into employee data, providing current and projected headcount as well as total workforce costs.
Following a major acquisition in 2012, business leadership gave HR a mandate both to acquire the best talent in the business and to understand the true cost of its talent. HR’s analytics team began searching for a solution that would deliver extensive self-service analytics capabilities to stakeholders as well as provide accurate workforce costs and support future planning scenarios.
Partnering with finance, the team mapped all available data and processes. The HR system held employee-specific data on salary and benefits, while an ERP system from finance provided aggregate cost data. Using a cloud-based system, the team aggregated all workforce cost data. To calculate the total cost of the workforce, the team developed a taxonomy of the different elements going into this figure, including direct compensation, benefits, employee costs for labor, and workforce overhead, as well as the subcategories under each.
After collecting and aggregating the data, ConAgra can now visualize these different elements in a single, interactive application displaying a wide range of metrics, including actual and planned headcount and actual versus planned workforce costs. HR and finance professionals are now able to analyze and optimize investments across a wider range of workforce costs. The company can now see the impact of spending on a minute level and understand how workforce costs impact its financial plan. For instance, the company can model workforce costs at two different locations, or better understand the cost of entering new markets. In the past, these calculations would have been highly time-consuming and error-prone to compute by hand.10
Data and analytics are key to solving many of the problems we identify in this report: engagement, leadership, learning, and recruitment. Companies that excel in talent and HR analytics can be positioned to out-compete and outperform their peers in the coming years. Without early, substantial investments, however, it is difficult to get traction. Companies should therefore make a serious commitment to this discipline, search for robust solutions from their core system vendors, and hire people into HR who have an interest and background in analytics and statistics.