The question “what is HR analytics?” is asked by a lot of HR professionals who want to get started with analytics. In this post, we will explain what HR analytics is and how it will shape businesses in the future.
What is HR analytics?
Human Resource analytics is about analyzing an organizations’ people problems. For example, can you answer the following questions about your organization?
- How high is your annual employee turnover?
- How much of your employee turnover consists of regretted loss?
- Do you know which employees will be the most likely to leave your company within a year?
You can only answer these questions when you use HR data. Most HR professionals can easily answer the first question. However, answering the second question is harder.
To answer the second question, you’d need to combine two different data sources. To answer the third one, you’d need to analyze your HR data.
HR departments have long been collecting vast amounts of HR data. Unfortunately, this data often remains unused. As soon as organizations start to analyze their people problems by using this data, they are engaged in HR analytics.
The scientific definition of HR analytics
What is the scientific definition of HR analytics? HR analytics is defined as “the systematic identification and quantification of the people drivers of business outcomes” (Heuvel & Bondarouk, 2016).
In other words, it is a data-driven approach towards HR.
Over the past 100 years, Human Resource Management has changed. It has moved from an operational discipline towards a more strategic discipline. The popularity of the term Strategic Human Resource Management (SHRM) exemplifies this. The data-driven approach that characterizes HR analytics is in line with this development.
By using HR analytics you don’t have to rely on gut feeling anymore. Analytics enables HR professionals to make data-driven decisions. Furthermore, analytics helps to test the effectiveness of HR policies and different interventions.
By the way, HR analytics is very similar to people analytics but there are some subtle differences in how the terms are used.
How HR analytics helps Human Resource Management
Like marketing analytics has changed the field of marketing, HR analytics is changing HR. It enables HR to:
- Make better decisions using data
- Create a business case for HR interventions
- Test the effectiveness of these interventions
- Move from an operational partner to a tactical, or even strategic partner
Today, the majority of HR departments focus on reporting employee data. This doesn’t suffice in today’s data-driven economy.
Just keeping records is often insufficient to add strategic value. In the words of Carly Fiorina: “The goal is to turn data into information and information into insight”. This also applies to HR.
Doing this enables HR to become more involved in decision-making on a strategic level. The picture below shows how this works in practice.
A few examples
To get started with HR analytics, you need to combine data from different HR systems. Say you want to measure the impact of employee engagement on financial performance. To measure this relationship, you need to combine your annual engagement survey with your performance data. This way you can calculate the impact of engagement on the financial performance of different stores and departments.
Key HR areas will change based on the insights gained from HR analytics. Functions like recruitment, performance management and learning & development will change.
Imagine that you can calculate the business impact of your learning and development budget! Or imagine that you can predict which new hires will become your highest performers in two years. Or that you can predict which new hires will leave your company in the first year. Having this information will change your hiring & selection procedures and decisions.
If you want to read more about how data can change hiring practices, check out Laszlo Bock’s book ‘Work Rules’. Laszlo Bock was the senior VP of People Operations at Google. In his book, he describes how hiring practices changed at Google after they started to analyze their recruitment data.
If you want to read a few very practical case studies, check out the links below:
Case Study 1: Key Drivers of Retail Sales Performance
Case Study 2: Reducing Workplace Accidents Using People Analytics
Case Study 3: How we Determined Optimal Staffing Levels
How to get started with HR analytics
Organizations usually start by asking simple questions. An example is: “Which employees are my high potentials?” You can answer this question using quite simple statistics. Doing this helps to quantify the relationships between people’s abilities and organizational outcomes. This way analytics helps companies track absenteeism, turnover, burnout, performance and much more.
Analytics makes HR (even more) exciting. Its insights are input for strategic decisions and optimizes day-to-day business processes.
In addition, if you know what makes your employees tick, you can create a better work environment and identify future leaders. Imagine that you can predict which employees are most likely to leave the company. This information helps your succession management and benefits strategic workforce planning. A notable example of a company doing this is Credit Suisse.
After asking the right question, you have to select data from your different systems. This data is then combined, cleaned and analyzed. This analysis leads to insights.
Not all insights are equally interesting. That’s why you should ask questions about things you can change. For example, you can’t change an employee’s gender. However, you do have influence over your management styles and engagement levels. Asking the right questions leads to actionable insights.
How does HR analytics shape the business?
You can imagine that HR analytics holds an enormous value for an organization. These examples are only the beginning. Indeed, analytics enables companies to measure the business impact of people policies.
By applying complex statistical analyses, HR can predict the future of the workforce. This enables managers to measure the financial impact of Human Resource practices.
Measuring the impact of HR on bottom line performance is the “holy grail” of HR analytics (Lawler III, Levenson & Boudreau, 2004). This is often done by calculating a Return on Investment (ROI). It is the most powerful way for HR to increase its strategic influence.
Knowing the impact of HR policies will also help HR to become a strategic partner and get rid of its ‘soft’ image. It helps HR to align its strategy with business goals and to quantify the value it adds to the business. It takes the guess-work out of HR.
So, how do we at Analytics in HR define HR analytics? We think it is about identifying the people-related drivers of business performance. It takes the guesswork out of employee management and is therefore the future of HR. Or, to put it in the words of Edwards Deming: “Without data you’re just another person with an opinion”.
Want to learn more about HR analytics? Check out our HR analytics courses.