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HR Analytics – a Human Resources revolution?

Following on from our look at Big Data, which is forcing job applicants to work on their personal branding, this week we are looking at HR Analytics for Human Resources. HR Analytics, which is not yet widely employed, uses the increasingly large amounts of data available to help businesses predict their HR needs, employee turnover and future skill requirements.

So is instinct being replaced by statistics? Black Hills Corporation, which has been specialising in raw materials for the last 130 years, saw its workforce double after an acquisition. Like many other companies in their industry, Black Hills Corporation faced a combination of issues (workforce approaching retirement age, the need to hire technically skilled labour etc.) that was creating a significant talent management risk.

The company decided to tackle the problem using HR Analytics. Its main objectives were to calculate the number of employees retiring each year and work out the type of candidate required to replace them. The result was a huge workforce plan with dozens of actions designed to counteract a potential shortage in skilled labour.

Definition of HR Analytics

So why did Black Hills Corporation use HR Analytics and why was it a success? The method dates back to the 1980s when it was mainly used in Finance and Marketing. These two sectors analyse available data according to statistical models.

The analytical challenge in Human Resources lies in identifying what data to use and how to use it. Data obtained through HR Analytics should enable a company to simulate and predict the skills it needs to get an optimum return on investment (ROI). The main aim is to find links between phenomena that are not obviously connected, such as how a person’s place of residence affects their absentee rate or excessive workload.

HR analytics functions

Different functions of HR Analytics (source: http://www.intellika.in/blogs/post/making-your-hr-analytics-enabled-from-data-enabled)

To do this, HR Analytics uses the vast quantities of data available, all of very differing types – from highly structured data (sales figures, for example) through semi-structured data (such as the results of a satisfaction survey) to non-structured data (like comments on social media sites).

Thanks to the reliability of available data and its constantly increasing quantities, making it more likely to play a key role, and thanks to the factual nature of decisions taken based on such data, HR Analytics is helping HR win back some of its credibility and is able to indirectly enhance a company’s employer brand.

How HR Analytics is growing

In a Bersin by Deloitte study, only 14% of the organisations surveyed had implemented advanced or predictive Analytics models to make talent decisions. Of the companies taking part in the survey, 56% use only the first phase of HR Analytics. In this operational reporting phase organisations rely more on the opinions and instincts of HR professionals, based for example on their experience, than on reliable HR Analytics. This reluctance is largely due to either a lack of the necessary skills in-house, unreliable data or company culture.

HR analytics obstacles

Obstacles to the roll-out of HR Analytics (source: KPMG)

However, it is likely that HR Analytics will become more popular, particularly as the capacity for storage and processing of employee and applicant data is constantly increasing. A survey of over 375 executives, two-thirds of whom serve an HR function, by the auditing firm KPMG in September 2014 showed that 82% of those surveyed are expecting their organisation to develop its use of HR Analytics over the next three years.

The stakes are high – according to a study by KPMG, three-quarters of executives think that human resources policies based on data analysis will improve company profitability over the next three years.

HR Analytics opportunities

Opportunities provided by HR Analytics (source: KPMG)

Some sectors will be more affected by the use of HR Analytics than others. According to a global survey by KPMG and the Economist Intelligence Unit, almost two-thirds (64%) of executives in the information and technology sector expect to increase their use of data analysis in order to improve their profitability by more than 10% over the next three years.

How HR Analytics can help HR win back its legitimacy

If HR professionals avoid succumbing to the tyranny of figures and use HR Analytics wisely, by asking the right questions to get the right answers, HR Analytics could help the function win back a key role within organisations. The use of HR Analytics could provide HR departments with credibility and legitimacy in the eyes of company managers, who tend to prefer figure-based analyses.

By using HR Analytics, HR departments can, for example, identify their organisations’ skill requirements for the next five to ten years, draw up a recruitment strategy and determine what type of candidates they need to look for. HR Analytics can also help predict future concerns when managing training plans, career changes and professional mobility issues.

Luk Smeyers, CEO of predictive workforce analytics company iNostix, believes that using HR Analytics can help predict the characteristics of high-potential applicants or provide the power to predict which candidates are more likely to leave the company or give a lower performance than their colleagues.

How HR Analytics can help employer branding

Companies using HR Analytics can indirectly enhance their employer brand, which is a reflection of all the company’s brand image issues as seen by its current and future employees.

HR Analytics can actually help an organisation stand out from its competitors by, for example, ensuring the right applicants are selected. This is important for a company’s stakeholders (its shareholders, for example) because good recruitment results in positive Key Performance Indicators (KPIs) for HR professionals responsible for managing the company’s recruitment budget. The company’s workforce will feel as though it belongs to a cohesive group whose work is recognised and measured more effectively.

And if employees are happy and feel that their work is recognised, then they will promote their organisation to the outside world. The relationship between employee and employer is a reciprocal one – the confidence of one has a positive effect on the other. Being ranked a “top employer” is a powerful tool with which to attract, hire and retain the best candidates. An organisation’s capacity to attract candidates directly determines the number of high-potential applicants it receives.

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  • Shawn says:

    I just completed my Post Grad in HR and although I learnt a great deal I think it would’ve been beneficial if there was an entire course on HR Analytics.