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 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?
These questions can only be answered by using your HR data. Most HR professionals can easily answer the first question. However, answering the second question is harder.
To answer the second question, you need to combine two different data sources. In order to answer the third one, you need to extensively 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 engaging 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.
In the past 100 years, Human Resource Management has developed from a primarily 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.
Instead of relying on gut feeling, analytics enables HR professionals to make data-driven decisions. Besides, analytics helps to test the effectiveness of HR policies and different interventions.
How HR analytics helps Human Resource Management
Just like marketing analytics has changed the field of marketing, HR analytics is changing the field of 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 mainly focus on keeping employee records and reporting data. However, this is often not enough anymore.
Merely 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 transform in a department which is involved in decision-making on a strategic level. The picture below shows how this works in practice.
In order to get started with HR analytics, you need to combine data from different Human Resource Information Systems. For example, when you combine your engagement survey with your (financial) performance data, you can measure the impact of employee engagement on the financial performance of different stores, departments, or other units.
Recruitment, selection, performance management, learning & development, and succession management will all change based on the insights gained from HR analytics.
Imagine you can predict which new hires will be your high 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 the book ‘Work Rules’. In this book, Laszlo Bock, SVP of People Operations at Google, describes how hiring practices changed for Google after they analyzed their recruitment data.
We also added three examples of case studies 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, such as: “Which employees are my highest potentials?” By applying simple statistical techniques to HR data, companies are able to find and prove the relationships between people’s abilities and the way the business is run. This way analytics helps companies track absenteeism, turnover, burnout, performance and much more.
Analytics make HR (even more) exciting. The insights it provides will change how businesses are run and how strategic decisions are made.
Additionally, if you know what makes your employees tick, you can create a better work environment, promote the best managers, and accurately compensate for superior performance. Also, when you can predict which employees are most likely to leave the company, you can engage in much more effective succession management and strategic workforce planning. A notable example of a company doing just that, is Credit Suisse.
After asking the 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 (easily) change an employee’s gender. However, you do have influence over your management styles and engagement levels. Asking the right questions lead to actionable insights.
How does HR analytics shape the business?
You can imagine that HR analytics potentially holds an enormous value for an organization. However, these examples are only the beginning. Organizations with highly developed HR analytics capabilities can start measuring 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 impact of Human Resource practices and policies in terms of financial performance.
Measuring the impact of HR on bottom line performance has been called the “holy grail” of HR analytics (Lawler III, Levenson & Boudreau, 2004). It is the most powerful way for HR to increase its strategic influence. It enables organizations to actively track and predict which policies lead to better individual and organizational performances.
Knowing the impact of HR policies will also help HR to become a truly strategic partner. Up until now, HR has been seen as a ‘soft’ and called a fee burner, unlike, for instance, sales. However, HR analytics can change this. It helps HR to perfectly align its strategy with business goals and to accurately quantify the value it adds to the business.
So, what is HR analytics? It is about identifying the people-related drivers of business performance and taking the guesswork out of employee management. It is 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 our HR analytics courses.