From data to better decisions
Digital transformation is changing the organizational decision-making process and creating connectivity among people, processes, technology, and data. Organizations have the opportunity to be the disruptor or to be disrupted. Your timely and positive decision-making process can help your organization and the business grow.
But to be successful in the digital economy, just having access to more data isn’t enough. To make decisions based on real data, you need to be able to ask questions and have better answers. What is needed in these troubled times is the ability to provide employees, managers, and administrators the business insight they need to make better decisions — in return helping your organization become the disruptor, not the disrupted.
The challenge for HR in this new digital world is to fundamentally change the way it has worked all these years and enable transforming the organization’s business strategy into results-oriented outcomes through people. This necessitates HR creating new processes and new business opportunities — stepping beyond the automation of HR processes and service delivery. HR has to take a more top-down approach: start with business challenges, identify KPIs and measures that impact business results, and engage the total workforce in delivering organizational objectives. Through digital transformation, HR can and must bridge the gap to help drive the leadership agenda.
HR analytics drives a better decision-making process
In the business world, terms like HR Analytics, People Analytics, Talent Analytics, and Workforce Analytics are used interchangeably. But when you talk about HR analytics, it goes past the HR domain and starts interacting with other functions like finance, sales, and supply chain to find meaningful answers for the business.
Even the most evolved and accomplished HR organizations struggle to fulfil their corporate responsibilities:
- Continuous transformation is not easy. HR has to manage Core HR and Talent processes efficiently and in regulatory compliance across the organization and throughout the employment life cycle.
- Engage, develop, and deploy organizational talent across the organization all year round for maximum productivity.
- Enable a better decision-making process across the organization with HR and talent insights, helping senior leadership make organization-wide decisions based on facts and big data.
Various organizations struggle to strategize and execute one or more of the above responsibilities, but progressive organizations are increasingly using KPIs, metrics, and big data in HR to respond to these challenges.
Why is there greater demand for HR analytics?
The role of HR organizations has evolved due to various business-defining moments in the last decade — the financial crisis of 2010, increasing globalization, diversity, the COVID-19 turmoil, and many other events. So HR has to be more strategic than just playing the role of an administrator.
New HBR research, “How Four Talent Practices Add Up to Big Revenue Gains,” suggests that four talent management practices have the potential to drive an additional 8 percent higher revenue per employee, for a total advantage over the average business unit of 59 percent:
- Select managers with natural talent.
- Select the right individual contributors.
- Engage employees.
- Add a focus on strengths.
To execute talent strategies well, HR organizations need analytics to help with their decision-making process. HR has come a long way, but the use of analytics within HR still lags behind other organizational functions by a large margin. As a result, HR organizations very seldom use data modeling and predictive analytics in attrition, hiring, and talent development, let alone linking employee performance with revenue growth. A SHRM report, “HR Lags in Using Data to Make Decisions,” found that 92 percent of companies are struggling to get the strategic insight they need to solve retention and other issues; 59 percent don’t currently have a system in place to monitor employee engagement; and 46 percent struggle to make better use of people data.
As a result, HR scorecards and dashboards usually depict primarily HR data, not the business impact of that data — because in most situations HR is not used to asking the right questions, so it does not solve the right problems. This is one of the main reasons HR is rarely involved in larger organization-wide decisions such as mergers, acquisitions, expansion into new markets, or moving from brick-and-mortar to digital.
HR trends
Recent Deloitte Global Human Capital Trends show the need for HR analytics (people data) and the lack of preparedness of organizations worldwide.
What are the biggest challenges of HR analytics?
Building actionable KPIs, metrics, and analytics in HR is not easy. Unlike a function like finance, which has used analytics for more than a couple of decades, HR faces many critical challenges in its analytics journey:
- Data scientists specializing in HR — who can gather, manage, and report on data — are a rare commodity.
- For useful HR analytics you need good-quality data, and more often than not HR cannot produce clean, high-quality data.
- HR usually resides in its silo and very rarely integrates well with other organizational processes, making data modeling and building hypotheses on the connections between talent and business performance extremely difficult.
- HR mostly follows a “best-of-breed” approach, with specialized software for almost every HR process (recruiting, performance, Core HR), which makes a holistic approach to solving business problems and tying actions and insight to ROI very challenging.
- There is no such thing as uniform KPIs and metrics in the HR world — no two organizations calculate headcount or turnover the same way.
- Finding HR analytics tools that can combine HR data, external benchmarking, and data from other processes together in a simple manner is hard.
Bringing everything together
The biggest challenge to business success through HR analytics is the lack of process and data integration — first within HR, then with external functions. HR needs to work very differently than before, but that is far easier discussed than done. Some tried-and-tested routes that apply to all organizations:
- Bring diversity into the HR function. Get people who understand the overall business, operationally and functionally, to work with the broader HR team; they build business acumen in HR and can talk the language of business.
- Bring in an HR-specialized data scientist who can build KPIs and metrics for HR with active support from the HR organization.
- Involve HR in the highest level of planning and decision-making. This builds mutually beneficial relationships with other business leaders and helps HR understand their issues and objectives — and where HR can make a difference.
- Learn and model tried-and-tested approaches from other functions: a supply-chain inventory model for people movements like hiring and turnover, a portfolio risk-management approach to turnover, shortages, and capability gaps, and customer loyalty models for employee engagement.
- At first, build a few key HR analytics — like the risk of key employees leaving and its impact on productivity — that are easy to demonstrate and get senior-leader buy-in, rather than something like linking employee motivation to shareholder value.
The goal should always be to focus on business outcomes. Every HR initiative — Performance Management, Succession Planning, or Talent Acquisition — should relate to the organization’s overall objectives, like customer satisfaction, higher productivity, and revenue growth.
Other aspects where everyone can work together
HR has the capability of looking across the organization through the lenses of people, staff movement, and culture. Hence it can solve the problem of connecting people and processes through a variety of quantitative and qualitative approaches:
- Identify the communication gap; analyze the organization’s communication flows, strengths, deficiencies, and bottlenecks.
- Build a cognitive, cohesive model for problem-solving where cross-functional and cross-organizational teams come together for a particular cause.
- Build organizational culture through job rotation; organizations that take job rotation seriously develop, over time, their own culture that makes all employees work as a single team.
Through these activities, HR can build an environment ready for superior HR analytics, helping it become part of the overall organizational decision-making process. As long as HR focuses on corporate objectives and comes out of its silos — and helps others come out of theirs — it can build amazing people analytics for everyone.
What should we learn from the recent COVID-19 crisis?
The recent and ongoing pandemic has probably changed the way everyone looks at business going forward. HR is front and center of the humanitarian crisis. All CHROs and senior executives should have learned that they must better utilize HR data and make human capital a better-understood and more strategic lever in business success and continuity — not only to manage the current situation but also to manage the workforce in the aftermath.
Post-COVID-19, organizations that focused on business outcomes and planned for possible future contingencies will do much better than those that lived in their silos. HR needs to quickly understand how the workforce is changing in terms of diversity, demographics, and capabilities — particularly as social distancing and work from home become the norm. As organizations let go of employees because of business losses, how will the face of employment change? Will organizations hire more contingent workers or more people who can work from home? What HR and senior executives learn from this crisis through big-data analytics will help them be successful in the near future and business-ready for future challenges.
SAP can help organizations be more data-driven and strategic
SAP, unlike other niche HR vendors, has decades of experience in business analytics across all industries and geographies. Hence it is well situated to help your organization build unique HR analytics for better decision-making. SAP can help you bring together all your organizational data — from people and enterprise data to big data, IoT, and beyond.