It is the wrong nomenclature to describe what HR departments are being asked to do in today's world. Yes, people management will always be the core responsibility of any HR department. But, there is a transformation going on and it is a significant one.
Most HR departments operate with a cost centre mentality - an enabling function within a company. This has to change. CEOs, executive management teams and even Boards of Directors are all asking HR departments to be strategic business-enablers. This transformation requires new means of thinking within HR and, in some cases, even changes in leadership as more and more business people are finding new careers in HR.
The new concept in HR is Return on Investment (ROI). The term ROI is typically used at the business line level only, but now we are hearing CEOs question the ROI on HR. This should scare many HR departments out there.
This transformation is spurring the rise of HR Analytics. HR departments cannot be strategic business partners without good data and analytics to enable better and faster decision making. The only way to measure the ROI of an HR department is with HR Analytics as, to be more specific, HR Analytics can help executives glean more information in places such as:
- Performance Management
- Attrition / Retention
- Succession Planning
While digging into the data of any one of these areas will derive meaningful insights, the true power of HR Analytics is harnessed when you correlate, or overlap, data from various areas. For example, correlating data points from multiple areas allows companies to answer questions such as:
- How does the performance of an individual or group relate to the compensation of that individual or group?
- How does compensation affect attrition?
- Do we know who our top performers are and do we have succession plans in place?
- What recruitment channel(s) have our top performers come from?
- If we increase or decrease compensation by a certain percentage, what will be the affect on attrition?
- Are we getting ROI on our training?
In addition to the transformational change within HR, there are other trends driving the rise of HR Analytics:
- Multi-generational Workforce
- Social Media
- Virtual Workforce
- New Technology (e.g. mobile devices)
- Global & Distributed Workforce
- Viral Recruiting
HR departments must connect their strategy to the business strategy. The only way to do this is to collect the right data, analyse it regularly, and produce compelling reports that people will read and understand. Let's take a real-life example of why this is important:
One of my clients has a global workforce and sells their products all around the world. The company's top two strategic initiatives are:
- Increase sales
- Open up emerging markets in the Asia-Pacific region
MindTree was hired by the HR department to analyse data on a number of factors to see what the people gaps would be in realising the business strategy. The good news was the company had great data. The bad news is this is what we found:
Performance data revealed the lowest performing organisation in this company was the sales team as compared to other functions (R&D, Operations, Service, Finance, etc.).
Tenure data revealed the sales organisation was older and was nearing retirement age.
Performance data revealed the highest performers in the company were based in Singapore which was the hub for their Asia-Pacific sales, but Attrition data and Succession Planning data revealed that the highest employee turnover was happening in Singapore and there were no successors in the system.
So, how can this company achieve its two main goals of increasing sales and penetrating emerging markets in Asia-Pacific if it has a sub-performing sales team and is losing all the talent in their most critical office? The biggest revelation was that no one knew that this was happening.
This is the power of HR Analytics. This company now can move to rectify things and get growth back on track. This is also a great example of proving the ROI on HR.
Capturing the right data and analysing it for business insights has to be a core responsibility of the HR department if it wants to be a strategic partner and prove the ROI on HR. When this happens, the term 'human resources department" should die. How about we replace it with, 'enabling everything to happen department' instead? Well, someday a new nomenclature will emerge.
Scott Staples is a co-founder of MindTree