The human resourse function has travelled a significant distance in the last three decades to claim its well-earned credibility today. This journey has been marked by many a paradigm shifts. It started as operationally reactive (meeting statutory regulations), became operationally proactive (hiring people as needed by the business) and matured into becoming strategically reactive (participating in strategic priorities). Its maximum potential will become available only when it marches towards becoming strategically proactive. This will call for uncovering strategic options and presenting them confidently before the leadership team.

In tune with this, the measurement of HR’s contribution has also seen many makeovers. Efficiency-oriented measurements drew the attention of HR professionals for several decades. From measuring cost of labour, absenteeism, time to hire, recruitment costs, training costs, man days of training and the like, it moved up to include intangibles such as employee satisfaction/engagement, training effectiveness, competency management and such. However, HR measured these intangibles without knowing how to manage them.

Scorecarding HR’s Value

Over the years, however, the debates revolved around moving from efficiency to effectiveness as focus of measurement. Dave Ulrich and Mark Huselid contributed to our understanding significantly with their seminal book on HR scorecard. Their work raised our understanding of the imperative to measure HR efficiency and deliverables, but even more importantly two other key aspects, such as “high performance work systems” (HPWS) and “alignment” between these HPWS. This helped raise the bar for HR measurement and reported how HR creates value for the business.

However, the real wave of value creation from HR is due to moving from compiling and reporting metrics to deeper analytics. HR analytics is not the same as measuring and reporting metrics. Metrics represent past performance. Analytics establish causal relationships and, thereby, help predict future value.

Causality is very different from correlation. For example, there may be a strong correlation between some training programs and employee engagement. However, a deeper probe may reveal that these programs may not really be causing engagement. The same often also holds good for a better-than-market compensation and employee engagement — strong correlation, but may not be any causality.

Cause and effect relationship is very difficult to establish when it comes to many soft areas with which HR is concerned. However, this is not reason enough not to measure and look for causal relationships. The temptation to measure what is easy to measure or what lends itself for measurement is too high and visible with many HR teams.

There is yet another widespread notion that one needs terra bytes of data to be able to do any meaningful analysis and analytics. This is not true. Often every organisation has enough data, and more so if they have implemented a sophisticated HRIS package in the organisation.

There is yet another idea among some of us that our organisations are unique, our challenges are unique and, so, measurement and analytics are not applicable. Nothing can be farther from the truth. Statistics are what they are and careful analysis can be done, no matter how unique one’s business may be.

HR analytics: The New wave

In the absence of meaningful analytics, we may actually miss out on two grounds. One, we may not be able to assess the return on our HR investments; second, and perhaps more importantly, lack of analytics may actually take us in the wrong direction.

For example, there are companies that excessively invested in promoting employee referrals as common sense dictated that higher the employee referrals lower the hiring costs and higher the joining rates. This is accurate, but in terms of what an excessive focus on referrals can do to an organisation in terms of quality and its impact on customer satisfaction may tell a different story!

It is important to understand the difference between measurements, metrics and human capital analytics. Measurement is data gathered regardless of reason. Metrics involve measurements for specific reason. Analytics are metrics that are analysed to create value. Analytics is information that is not only nice to know, but can be used to make business decisions.

HR analytics basically refers to gaining actionable business intelligence and insight from people-related data within an organisation. This becomes feasible by using quantitative methods. While analytics helps generate predictable business outcomes, there is no guarantee that analytics delivers perfect version of the future. Circuit City, one of the companies that figured as ‘great’ in the “good to great” study of Jim Collins, went out of business in 2008 and one of the biggest reasons for it was that it laid off over 3,000 experienced people to cut costs. This was an ‘easy decision’, but a detailed analytics would have given them a wake-up call on the dangers of doing so. Circuit city is not alone. Many companies today resort to mindless retrenchment for short-term gains, only to find out later that it was a disastrous decision. Likewise, cutting down training costs as the first step in cost-cutting has hurt many companies.

Analytics in HR is not about reporting, dashboards or complex math. It is about data-derived insights that drive better business results. Since analytics is the missing link that enables us to identify the top people drivers of the business results, three primary statistical methods are used to link people factors and business results — multivariate analysis, correlations and comparison of means/t-tests.

Two decades ago, technology leverage was the first wave and outsourcing in HR was the second wave — both of which added tremendous value to HR. Now is the turn for the third wave that has immense potential to catapult HR onto the centre stage and if not embraced it will sweep the HR profession under carpet!

(The author is an Executive Coach and HR Advisor.)

Related Topics