HR’s Contribution to Business Value
In the commercial world, businesses need to stay ahead of their competitors to sell more products and services and to increase revenue and profit. The general aim of businesses is to increase market share and value for their owners. In the public or voluntary sector, organizations need to increase value through efficiency and effectiveness in delivering products and services to their constituents, whether they are service recipients, taxpayers, or donors.
Whether public, voluntary, or private, all organizations need to deliver value. This requires using financial metrics and key performance indicators to monitor and improve operations. Evidence already shows the importance of workforce analytics to profitability, one key financial metric. In a 2015 KPMG report, written by the Economist Intelligence Unit, a large majority of executives (91 percent in IT and technology, 81 percent in biotechnology, and 70 percent in financial services and healthcare) indicated that an increase in the use of data-driven insights in their HR function would affect profitability over the subsequent three-year period.
As organizations seek to improve performance, the onus is on HR to build value. The best way to do this is through an analytical approach. This is not necessarily where HR has seen itself in the past. Patrick Wright, a professor at the University of South Carolina, states: “When you hear about the work of Finance, Marketing, or Information Technology, it’s about numbers, numbers, numbers. When you hear about the work of HR, it’s about words, words, words.” We also believe, however, HR should not aim to transform itself into a purely analytical function and lose touch with the human behaviors and characteristics that also help people and businesses succeed.
For many organizations, the analytical transformation has already begun in areas familiar to HR, such as attrition and retention analytics, recruitment analytics, workforce planning, compensation optimization, and employee engagement. John Boudreau, a professor at the University of Southern California, has witnessed this: “There are some very prominent examples of analytics being used to answer important questions in HR—for example, which people will leave and how successful a candidate will be if hired. These are important questions that have been answered with analytics.”
Workforce planning is another area of HR that is ripe for analytics attention because analytically driven techniques make it more strategic and sophisticated. Salvador Malo, Head of Global Workforce Analytics, explains how this is playing out at Ericsson: “Optimizing the workforce requires a two-pronged approach: First, understand the business requirements and translate these into needs for the future; second, get to know your workforce in some depth. Together these insights about the business and the people who work in it will lead to recommendations that improve workforce planning.”
Prediction of attrition and candidate success, and workforce planning are all important topics for workforce analytics attention. Even greater value is realized when workforce analytics contributes to business outcomes. An impressive body of scholarly literature1 shows that a firm’s HR practices affect performance outcomes at all levels, from individual employees, teams and units, all the way to organizations as a whole. These HR practices can improve the breadth and depth of employee knowledge and skills in organizations—for example, through learning and development or the attraction, selection, and retention processes.
“Our job as analytics experts is to ask the tough questions to enable executives to better manage their organization and perform their fiduciary duties.”
—Alec Levenson, Economist and Senior Research Scientist,
Center for Effective Organizations, University of Southern California
A multiyear project undertaken in ISS, a global facilities services organization, offers an example of how workforce analytics contributes to business outcomes. The project brought together employee engagement and customer advocacy data to link to financial outcomes. ISS concluded that when both employee engagement and customer advocacy are high, profitability is highest. The average profitability in units scoring highest on both dimensions was 7.75 percent, versus 4.52 percent in the lowest-scoring groups.
Run Your Business with Analytics
“My perspective on analytics in HR is that every other business leader I know runs their business with analytics, but there’s a black hole when it comes to HR.” This is the view of Tracy Layney, Senior Vice President and Chief Human Resources Officer (CHRO) at Shutterfly, Inc.2
She goes on to explain two general types of analytics, which she tries to keep separate:
True workforce analytics. The approach of measuring behaviors in organizations and knowing how to knit them together to improve business performance. The approach is similar to that taken with customer behavior, but this one concerns employee behaviors.
HR analytics. The functioning of the HR team itself—for example, analyzing key performance indicators (KPIs) such as time to hire. Such analytics are about holding the HR team accountable.
Tracy says that every CHRO should be focusing on the first point. “We should be giving more levels of data showing leading and lagging indicators about our people. We have to make it an ‘insights’ exercise, not a reporting exercise—for example, using the insights to achieve business outcomes, or to expand into new markets.”
She says it is essential to both increase the skills in HR and reset the mind-set of business executives. “We talk about increasing the skills of HR, but we have to recognize that we [HR] have also trained our leaders how to think about the people part of their business, for example—to run it in a very program-driven way (such as the annual salary cycle or talent reviews). We have to push out of those expectations, to do things quite differently.”
Tracy concludes, “This is a huge area of opportunity for the HR profession. Workforce analytics and strategy together is a really powerful combination.”
A second project, this time at global pest control firm Rentokil Initial, focused on the predictability of sales success. The project isolated the key behaviors of high-performing sales professionals and used automated assessment techniques to select future candidates based on those behaviors. Global sales rose more than 40 percent and the project had a return on investment of more than 300 percent.
These examples, described in more detail in Chapter 6, “Case Studies,” demonstrate that workforce analytics can contribute not just to improving the effectiveness of HR processes, but also to improving and predicting business outcomes such as profitability and sales.