When you survey the most frequent users of analytics and metrics in the corporate world, not surprisingly you find that HR ranks at the very bottom. Compared to finance, which is ranked No. 1, HR compares poorly with only half of its functions being classified as advanced users and three times more HR functions are classified as non-users.
HR shouldn’t be surprised to learn that the executive team came in No. 2 because they (along with finance) are at the forefront of demanding more metrics and analytics from HR. The remaining business functions, operations, R&D, marketing, and sales all had a higher percentage of advanced metrics users than HR in this excellent 2013 AMA/i4cp study. I have been a public advocate of talent management and talent acquisition shifting to a data-based model for decades but the transition at most corporations has been slow, expensive, and painful. Because I give regular presentations on analytics and metrics, I’ve been able to capture a long list of reasons why firms should shift to a data-based model. The remainder of this article is simply a list of credible reasons that resonate with most HR audiences as to why your corporate talent function should embrace metrics and a data-based decision model.
Part I – Reasons Why Every Firm Needs to Shift to Data-based HR Model Using Standard Metrics and Analytics
- To increase profit — last year a study by the Harvard Business Review group found that advanced user firms that most effectively managed their workforce using analytics improved their firms profit by as much as 65 percent.
- Metrics allow you to demonstrate your business impacts — working with the CFO’s offices, it is possible to quantify the dollar impact that HR actions have on business goals. Quantifying the business impact in dollars makes it easy to compare your business impacts to those of other more visible business functions.
- Numbers are the most effective way to influence managers and executives — executives and managers are frequently fanatical about numbers, so numbers can be used to influence them and to change their behavior. As Google has found, “the best thing about using data to influence managers is … it’s hard for them to contest it. For most people, just knowing that information causes them to change their conduct.” Since a great deal of people-management work is done by managers, provide them with whatever numbers and data that might be required to make them more compliant.
- Continuous improvement is likely and error rates will go down — metrics drive and allow for continuous improvement. As illustrated by this classic HP slogan, “You can’t improve what you don’t measure … and generally … whatever you measure … improves.” The stark reality of metrics forces many to realize that there is much left to be done. Because metrics also highlight errors, the use and distribution of metrics will dramatically increase the number of major errors and weak decisions in your function (i.e. bad hires, preventable turnover, delayed terminations etc.).
- Increased focus among your employees — the practice of selecting what to measure and what not to measure unambiguously lets everyone know what’s important and what is of lesser importance. Gathering and reporting metrics as the effect of getting everyone focused on the right things.
- A wide distribution of your metrics increases everyone’s attention — widely distributing to every manager a best-to-worst ranked list of each manager’s or groups performance on a particular HR topic helps at least the lower ranked managers to focus on the problem. Widely distributing metrics reports also increases best practice and problem sharing across boundaries and between the best and the worst performers. It may also create some healthy internal competition, and yes … some embarrassment among the lower performers, which may set a fire under them.
- Metrics allow you to find out if existing approaches are working — metrics can help HR leaders see which of their existing programs and tools are working and which ones are not (so that you can stop using them or fix them).
- Metrics allow you to assess the effectiveness of new programs — you should require all new talent programs to have goals and performance metrics. If you do, both program leaders and executives will be able to quickly see the effectiveness of new HR programs.
- It is better to be prepared — given a choice, is almost always better to be prepared … than to be surprised. Metrics help you understand what has happened and what is happening now, so that HR and managers can prepare for things that are trending.
- It makes your function appear more businesslike and results-oriented — because so many other business units have long ago made the shift to a data-based decision model, it makes HR appear to be more businesslike and results-oriented when it finally makes a shift.
- “Off the top of my head” can be replaced with “I know” responses — HR has a long history of giving “off-the-top-of-my-head” answers, providing “gut” opinions and relying on past practices that may no longer be valid. In order to give accurate advice, HR must use data so it can make informed decisions and know what works and what doesn’t. Perhaps Google says it best: “We want people management decisions to reach the level of engineering decisions.”
- Metrics identify hidden causes — if HR goes beyond typical “what-happened metrics” and goes further and gathers what I call “Why metrics” (why something happened) it can identify the hidden or root causes of HR problems.
- Metrics help you accurately funnel resources into those high-business-impact areas — once you know the highest-business-impact programs and the ones that are not working, you can more accurately allocate your budget and staff to the areas where they can have the highest impact and ROI.
- Metrics speed up and increase the consistency of talent decisions — if you periodically gather and report metrics, your decision-making will be noticeably faster as well as more consistent and accurate. And because most metrics are in electronic form, it’ll be much faster and easier for decision-makers everywhere to have access to the same data and information.
- Metrics will increase funding/executive support — since CFOs love metrics, incorporating them into your plans and proposals will increase the likelihood that you will get more executive support and funding. If you report the ROI of individual talent programs, you will be able to compare their effectiveness to those of other business functions.
- Metrics force you to use the CFO’s language and logic — those in HR have a long history of using soft words in place of numbers. Metrics force you to use the language of business (dollars and numbers) and to present the information in a way that’s consistent with the business presentations of other functions.
- Employees also benefit from metrics — top-performing employees demand that you keep score (champions always keep score and they love accountability). Employees will have to suffer through fewer surprises because their performance level, successes, and errors will be measured and reported to them periodically.
Part II – Reasons to Raise Your HR Metrics Effort to the Next Level With Predictive Analytics
Traditional HR metrics have a limited impact because they are backward looking and they merely report what happened last year. Much like telling you who won the Super Bowl last year, historical metrics don’t add nearly as much value as having someone tell you six months in advance who will likely win the Super Bowl next year. Predictive analytics are superior because they analyze past and current data and reveal patterns and trends that may allow you to accurately predict upcoming people management problems and opportunities. If you are trying to sell your leadership on switching to predictive analytics, below you’ll find a list of the top reasons that make predictive analytics worth the extra effort.
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- Predictive metrics initially make you aware of shifts in historical patterns — because predictive metrics are forward-looking, they begin by looking for patterns so they can let you know which of the past historical patterns will remain steady and which ones will no longer hold true for the future. This information can inform decision-makers that their current HR programs may no longer work.
- An opportunity to stop guessing about the future — HR leaders can reduce “off-the-top-of-my-head” guesses and instead routinely make informed decisions about what is likely to happen in the future.
- They alert you so that you have time to prepare a plan — there are many more opportunities to be surprised by unpredicted events. Fortunately, because predictive analytics are forward looking, they tell you what is about to happen. And because managers are alerted in advance, they have time to prepare a plan to mitigate the damages or even avoid the upcoming problem altogether. They can also warn decision-makers about upcoming positive talent opportunities, like an upcoming period of reduced talent competition in the recruiting marketplace, where you can fill your jobs with top talent more easily. You will dramatically decrease costs because you mitigate problems before they get out of hand.
- An opportunity to be strategic — part of the very definition of being strategic is to be forward-looking. So implementing predictive analytics can demonstrate to executives that you are acting strategically by forecasting, assessing risk, and preparing for the future. Because strategic metrics are predictive, they make it more likely that elements of the HR plan will be integrated into the strategic business plan.
- Understanding “why” those shifts are happening — the best predictive analytics identify not just which factors are changing, but also why they are changing, so decision-makers can implement solutions that best fit the root cause of the problem.
- Revealing impacts increases the odds that decision-makers will act — because actionable predictive analytics are designed specifically to increase executive action, executives are more likely to act when they read them. Actionable metrics advise decision-makers on important business impacts like the estimated costs of upcoming problems, the cost of doing nothing or delaying, and which actions have the highest probability of completely solving the predicted problems.
- The time to respond to an executive query will be reduced — Because most predictive analytics approaches are electronic, more integrated, and comprehensive than traditional HR metrics, the time that it takes to get an answer to a decision maker’s query may be reduced dramatically.
- Predictive analytics can allow you to model different approaches — advanced analytics processes allow decision-makers to develop a model which allows them to try out different alternatives and to vary the constraints and the assumptions in order to see how the results would change. Such models or if-then scenarios can excite decision-makers, while at the same time helping to avoid major errors because new approaches have been mathematically simulated.
- They provide your firm with a competitive advantage — if your talent competitors don’t develop predictive analytics, the predictions provided to your decision-makers can provide your firm with significant talent and business advantages.
- They can cover all critical talent areas — predictive metrics can provide heads-up alerts in all of the important talent areas including recruiting, retention, leadership, performance management, and internal movement.
- Becoming aware of new relationships in talent management — predictive analytics can reveal new relationships between talent factors that did not exist in the past. For example, a policy shift requiring part-timers to work under 30 hours per week to avoid health insurance costs may have unintended consequences. It could now significantly hamper recruiting and increase turnover problems in jobs that had no past history of recruiting or retention problems.
If you have been wavering on completely implementing traditional or predictive analytics, I hope the multiple reasons or benefits that I provided here will finally convince you that the time to act is now. In the business world where every function makes decisions based on data, HR and talent management can no longer be looked upon as a laggard in this critical business area. Instead of guessing, it’s time to actually know with reasonable certainty what is about to happen in talent management.