People analytics, historically referred to as HR Analytics and utilized strictly as an HR function, has evolved into
a systematic data-driven approach to improving your entire business.
If you are a leader or manager in a large organization, you are
probably familiar with these terms. But you may be unaware how your organization can benefit from people
analytics and what it will take.
That is what we will
discuss today.
Table of Contents
What is people
analytics?
People analytics is
the process of leveraging new or existing data within your organization to
provide invaluable insights into your workforce and help you make better
business decisions.
People analytics
delivers facts about your organization such as why people are leaving your
organization, the challenges they face, how much this is costing you, and more.
Equally importantly, it paints a picture of how to anticipate and prevent these
staffing challenges.
Difference between HR,
people, and workforce analytics
People analytics, HR
analytics, workforce analytics, and even human capital or business analytics
are all different terms that share a common purpose: to improve all areas of
business performance through the use of workforce data. Whatever you call it,
the goal is to create a productive, innovative and powerful workforce, which
positively affects the bottom line.
How organizations
benefit from people analytics
The true value of a
well-structured people analytics initiative will reflect directly on your
bottom line. We’ll talk more about this in a minute, under the ROI section.
For now, here are a
few ways your organization can benefit from people analytics.
Ten Ways Organizations
Benefit from People Analytics
1. Understand and improve retention
2. Identify patterns of racial bias or inequity
in compensation
3. Create effective, non-biased processes for
hiring and promoting
4. Strengthen workforce decision making
5. Increase accountability
6. Shift team silos
7. Improve employee productivity and commitment
8. Determine the traits of your quality employees
9. Seek better employee sourcing options
10.Develop a culture where decisions are made in
accordance with the evidence
How does it help my organization
make better decisions?
A crucial component of people analytics is the ability to make
informed decisions based on user data. An example of this is McDonald’s. They
learned that employees working in groups containing a healthy
mixture of generations tended to be happier. Happier workforces can lead to
improved service, product quality, and teamwork, all creating higher value for
the restaurant brand.
When CHCI worked
with a shipment and transportation logistics business and analyzed personnel
data, we determined their attrition rate alone was costing the organization
millions of dollars. We were only able to start addressing the problem once we
identified the root cause and fundamental elements of the problem through
people analytics.
Google, a top 500
company benefited tremendously from understanding their workforce at
a much deeper level. Google is continually analyzing data and
discovering solutions to improve their workplace,
while creating an unstoppable powerhouse and attracting some of the most
innovate minds from around the world.
Using data to solve
problems
Leaders often make a
decision based on “gut feeling” or “a hunch”, which is ineffective and
unnecessary. This approach offers zero certainties that the solutions were the
right ones, or what the effect of a different approach to the problem could
have been. In contrast, having evidence that supports those decisions has a
much higher chance of being correct.
Where do you begin?
Knowing the critical
role that data plays in solving business and workforce-related problems, where
do you begin?
CHCI has a meticulous
process called PODAMIA, an acronym that describes the scientific, human capital
problem-solving process. At a high-level, the process consists of understanding
the strategy and critical business areas, identifying the right questions, and
then answering those questions with data.
CHCI’s PODAMIA Process
The power of PODAMIA
lies in its powerful six-step process to solving problems through data. It is
specifically designed to improve the probability that the problem in question,
the insights obtained, and the advice given by the leadership team are all in
line with the organizational goals.
Let’s have a closer
look at the steps:
1. Problem: Identify and prioritize key problems for
the organization.
2. Opinion: Solicit opinions (not data) and think
through possible solutions.
3. Data: Determine the type of data required to
answer the problem defined in steps 1 & 2. Data may already exist; if not,
establish a formal data collection process and begin data collection.
4. Analysis &
Metrics: Start analyzing
the data and metrics. Our team of analysts uses
specialized software to interpret the results.
5. Insight: Our team of skilled analysts takes a
close look at the entire picture and draws insights from the data, including
answers to the questions defined in the beginning. These findings are then
communicated to leadership in plain language.
6. Advice: Once these insights have been reported,
leadership, now armed with data analytics, can make data-driven decisions.
How other
organizations leverage people analytics
Many organizations have successfully implemented and benefited
from people analytics, and those numbers are growing
fast.
Another organization that is leveraging psychographics is Seedcamp. Their objective is to identify
groups of employees (teams) that have the greatest odds for success.
Saberr uses
algorithms that enable them to focus on the core values and behavioral traits
of their candidates. They feed data into their algorithms to help them compare
key values, behavioral compatibility, and diversity, thus helping them
ultimately predict with much higher precision the strength of the interpersonal
relationship between the applicants and potential employer. They are able to
eliminate the initial bias, by using a survey for both the employer and
applicant.
Understanding the ROI
of people analytics
How much does it cost
your organization to replace an employee? Do you know your cost per hire? What
is the cost of absenteeism per salaried or hourly employee?
By understanding the
answers to these and other relevant questions we can start to see the kinds of
returns your organization can experience.
How do people
analytics affect the bottom line?
Let’s take a
hypothetical example:
Say your organization has 1,500 employees, with an average
turnover rate of 18.5% (up from 15.1% in 2013).
Let’s also assume your average employee salary is $70,000.
Lastly, we need an employee replacement rate. Some studies estimate
50% to 60% of an employee’s annual salary, while others say the
ranges may be even higher for jobs that require a higher level of education and
specialized skills, such as 213% for
senior or executive level positions.
In our example,
however, we will keep it simple and say it costs a third (33%) of an employee’s
annual salary to replace them. Keep in mind our example does not include cost
per hire or cost for absenteeism, which would drive our loss even higher.
Let’s throw these
numbers into a spreadsheet so we can begin to see the real value people
analytics can bring to your bottom line.
In this example, it’s
costing this organization almost six and a half million dollars ($6,500,000) to
replace employees every year.
Now that we understand
the loss (and potential gain), we can start to analyze and explore solutions
that will help increase the retention rate and reduce employee turnover. By
drilling down on the data and understanding why people leave the organization
and the things we can do to prevent them from leaving, we can start to see the
impact this would have on the bottom line.
In our example, we
only used ‘averages’. Your actual numbers may be much higher or lower. Without
people analytics and the invaluable insights it can reveal, it’s difficult to
assess the opportunities that can improve the long-term performance of your
organization.
A study by the Work Institute pointed out that over 75% of reasons employees
leave can be prevented. The question then becomes: how is your
organization dealing with this?
How should
organizations implement people analytics?
1. Understand the return the organization can
ultimately gain from a well-planned people analytics program. The example above
is a great way to start thinking about this.
2. Sit down with your team and start asking where
the challenges are and how those tie back to the organizational mission and
strategy.
3. Research consulting companies who are experts
in the field of people analytics and have the capability to develop a solution
customized specifically for your organization.
What to look for in an
analytics consulting company
Working with an
analytics company that will execute successfully is a crucial step in the
process. A reputable analytics consulting company has a team who are experts in
the key areas of statistics, qualitative and quantitative data analysis,
predictive and descriptive analytics. They also dominate an array of analytical
tools that help understand vital aspects of the workforce.
Let’s bundle this up
into a shortlist of key items to consider:
- Determine
if they are experts in the field of people analytics
- Examine
vendor portfolio, papers, and research
- Check
references
- Interview
the consulting company(s)
- Consider
and evaluate carefully (with your team)
What is the cost of
implementation?
The cost of a successful people analytics implementation will
depend entirely on the size of the organization, the kinds of questions you are
trying to answer based on business goals, and whether existing data can be
utilized or whether you will need to collect it. We encourage you to reach out
to our people analytics team of
experts for information on planning, strategy, and investment.
Think of ‘cost’ in a
different way
If you are an
executive, particularly in Human Resource Management, then you know full well
the challenges, and more importantly, the costs involved in hiring the wrong
employees, the loss of those stellar ones, and the pain of dealing with
absenteeism. Therefore the investment your organization makes in people
analytics can easily be offset by improving those areas – quickly.
Anne Loehr, our
Senior Vice President said that organizations and top performers with advanced
analytics strategies tend to enjoy increased revenue growth and operating
margins of 15% or
more.
The challenge then
becomes how to align those issues with the strategy and mission, to solve these
revenue-draining problems.
How does CHCI use
people analytics to help organizations?
Our team of analysts
is obsessed with discovering insights that are strictly based on evidence. Put
simply, we help leaders make better workforce-related decisions.
Our analysts are
experts in the following research methods:
- Quantitative
and qualitative data analysis
- Organizational
network analysis
- Future
workforce trend analysis
- ROI
analysis
- Survey
design
- Thematic
and numeric content analysis
Getting a bit more technical, CHCI calculates and
extrapolates information from descriptive and inferential statistical tests,
including measures of central tendency, variability, correlations, chi-square
tests, linear, logit, probit, and selection regression models to support
analytically-based, human capital decisions. Why? To achieve measurable
improvement in productivity and engagement across an organization.
Overview of
capabilities
CHCI uses an array of
analytical tools to assess an organization’s workforce characteristics. These
tools help you make data-informed recommendations on topics such as talent
acquisition, workforce planning, employee engagement, and performance evaluation.
Below is a list of the characteristics of our process. For a
detail view on each of these, we invite you to read our complimentary people
analytics summary paper.
- Analysis
of existing data
- Survey
design
- Performance
assessment development
- Existing
policy review
- Organizational
network analysis
Conclusion
Having the ability to
make decisions based on evidence is important. While we need the data of people
analytics, this process will always rely on a ‘human element’ as well.
We are living in an age where almost everything we do generates
some form of data, known as big data.
And if you are not putting systems and processes in place today to help your
organization leverage that data, you are falling behind. Without the ability to
extract context that allows you to make sense of that data, it serves no value
for your business.
So ask yourself where
your business will be in ten years. Did you adopt analytics early enough to
position your organization for success in the future? Will you have people and
business analytics in place that will help you stay competitive? And lastly, will
you have organized the data in such a way that allows you to seamlessly merge
with AI technology?
These answers will not be straight-forward. However, what is
certain is that only you can answer them.
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