Workplace analytics: a competitive edge for HR
Difficult economic conditions have created workforce challenges across both the private and public sectors. Managers are under pressure to accomplish more with fewer resources and the battle for talent has intensified.
Against this backdrop has emerged a growing appreciation of the need to better understand human capital. But truly beneficial HR analysis remains thin on the ground.
In many companies, virtually every other area has been wired to 'business intelligence' software and dashboards that help executives make critical operational decisions about matters such as cashflow, manufacturing, supply chain and financial reporting.
So why is there a blind spot when it comes to the workforce? Some HRDs struggle even to provide figures as basic as how many people work at their organisation.
"The HR department today should be a strategic asset to the business and can make a valuable contribution to many aspects of the organisation," says Simon Macpherson, senior director, operations EMEA, at workforce management and analytics company, Kronos. "HR can be involved in several aspects of workforce analytics. Some are in the traditional HR arena, such as making sure any diversity quotas [see box, page 50] are met, but others are more strategic to productivity.
"HR can support the business by combining the transactional workforce data with business output data to identify skill shortages and development opportunities, pushing up productivity as a consequence. Human capital is your competitive advantage and businesses should be using workforce analytics both tactically and strategically to remain competitive."
There is evidence to support the assertion that businesses pursuing an analytical approach are more likely to succeed. A 2010 MIT Sloan survey of 3,000 executives, Analytics: The New Path to Value, found that top-performing organisations use analytics five times more than lower-performing ones.
The ongoing economic uncertainty has meant many organisations are seeking advice from their HR functions for matters such as workforce optimisation, organisational development, remuneration and retention strategies. In all these areas, analytics can provide HR professionals with greater clarity to identify and predict trends, manage workforces and potentially encourage employee engagement. Those organisations that take analytics seriously tend to go about it in one of two broad ways - either investing in HR professionals with analytical skills or via a specific data-analytical function that supports HR and provides market insight, thereby freeing HR professionals to focus on making strategic business decisions.
Jonathan Wiles, MD of recruitment business Michael Page Human Resources, says among his client base there is a fairly even split between those seeking to hire HR professionals with analytical skills and those who have a separate analytical function that supports HR. In his opinion, "increases in roles for HR professionals with analytical skills have been driven by churn rather than investment over the past 18 months". So while HR analytics is widely acknowledged as being of increasing importance, it appears organisations are not devoting more resources in-house towards it.
This is a pity, because if executives could see workforce trends, performance and needs at a very granular level, this would deliver the insight to more effectively manage the major assets of the business.
A lot of organisations are simply overlooking the possibilities. Paul Levett, chief product officer at people intelligence business SHL, goes so far as to assert "some HR teams are scared of analytics" and castigates organisations for sitting on years of assessment data. In September 2011, the company launched SHL Talent Analytics, designed to allow HR teams to benchmark talent against competitors. Based on what is claimed to be the world's largest people intelligence database, it has over 80 million data points and SHL says it is growing by 25 million assessments per year.
With analytical tools becoming more sophisticated, they can assist HR functions moving into the business partner role, with a voice at the board rather than a perception as being administrative or for recruitment. A critical piece of the jigsaw missed by HR practitioners wanting to be seen as adding strategic value is the ability to hold their own by driving insight from the data to hand. When HR can match its human capital understanding to the financial capital and business asset understanding of other business functions, that is when it will secure a truly strategic role.
"Historically, HR has been perceived by some as a back-office function, an enabler rather than something that shapes how you improve your business performance," says Howard McMinn, workforce analytics lead partner at business advisory firm, Deloitte. "But, analytics is transforming the role that HR plays. It is moving it away from the traditional position of resourcing managers, to a place where HR can provide management with insightful evidence that helps improve business performance."
By way of example, McMinn points to a team struggling to hit quality targets. The knee-jerk response may be the costly one of hiring more people. However, throwing numbers of staff at a problem seldom fixes underlying issues. Analytics, McMinn continues, can be used to understand the reasons why targets are being missed and what can be done to resolve the problem. "Analytics is helping reposition HR from the group being tasked to recruit more bodies to the group providing insight on whether they really need to be hired," he says.
In manufacturing, increasing numbers of workers on a production line may increase productivity, but in another scenario can cause a bottleneck - while retailers use analytics to understand if trading increases when the most successful sales assistants are deployed during the busiest trading times.
This, explains Macpherson, seems intuitive, but in some instances may not be the case, as some serious shoppers do not wish to be disturbed. Does it make sense to add more salespeople, or might it have a negative effect? Understanding how your workforce interacts with your customers will help you to arrive at an optimum number that keeps sales up and labour at an acceptable cost, he adds.
There's a compelling argument that applying workforce analytics to ensure employees are used to their optimum level can increase job satisfaction and reduce churn. But in terms of measuring attitudes and behaviour, there is a sense that HR still has much to learn from academic researchers.
Many employers still adopt a simple scorecard approach, in which a variety of factors in employee experience and engagement are measured using a basic mean score analysis. But the relationship between the different factors is not properly mapped out or analysed, for example, by an analysis of key drivers and outcomes that relate back to business-critical variables.
According to ReputationInc director, Nuno da Camara, businesses can gain hugely valuable information into the actual importance and impact of various aspects of employee experience and use this to allocate resources/investment more efficiently by introduction of a causal/behavioural model of engagement, in which the key drivers and outcomes are mapped out and multiple regression (or structural equation modelling) techniques are used to analyse the relationship between key variables.
By looking at correlations between seemingly unrelated drivers, HR can discover valuable insights that can lead to those drivers becoming KPIs and potentially even predictive tools. For example, says Concentra director Ben Scott Knight: "What is the relationship between tenure and sales performance or gross operating margin? What is the correlation between the engagement levels and the amount of holiday a manager might take? By finding correlations, forecasting can become possible."
So, is a sound grasp of analytics important in any HR role? Certainly, argues Nicholas Higgins, founder and CEO of professional services firm Valuentis - at least for any HR person whose role relates to managerial decision-making.
Higgins would not like the use of the term 'HR' in the previous sentence as he strongly believes 'human capital management' is more accurate nomenclature, as it implies proactive input to decision- making, whether talent- or risk-oriented; or indeed both.
Maybe the time of analytics will truly have arrived for good, once we see the title 'HCMD' begin to replace 'HRD'.
Anyone have some data on that?
Diversity and inclusion
"Analytics is key to understanding how your recruitment processes impact upon diversity and inclusion (D&I)," says Christine Higgs, head of business development at talent assessment specialist, Talent Q. "The data that is available from the job application process - such as candidate information and their assessment data - will confirm whether a recruitment process is promoting diversity or having an adverse impact on minority groups. The insights gained from analytics can empower HR practitioners to review and amend their processes to ensure they are fair and legally defensible."
Yet this is only the start. Executives are realising D&I in the widest sense is vital to growth, innovation and performance. However, most organisations are still struggling to make the transition from an environment of discreet D&I initiatives, targets and compliance to a genuine shift in mindset and behaviour.
An integrated, organisation-wide approach is required to drive change. Historically, one of the brakes on a move to such comprehensive change has been a lack of suitable tools that enable HRDs to visualise their organisation from any perspective - be it diversity, tenure or performance.
The emergence of more sophisticated analytical products in recent years means HRDs can visualise their organisation in a more insightful way. "By generating rich and engaging visualisations of the organisation, either hierarchically or spatially, facets of that organisation are revealed that would otherwise remain hidden," says Ben Scott Knight, director at Concentra, the business strategy firm behind the OrgVue tool for understanding organisations.
"The strength of great visualisations is that they are more effective at engaging employees, managers and executives than mere numbers alone and reveal unexpected insights that can be actioned and tracked through the same tools that revealed them."
A clear view of the D&I picture, coupled with a strategy for building on diversity, arguably leaves HR well placed to exert greater influence on the organisation as a whole.
Risk management: the vapour trail
Here's a new twist on that awful cliché, 'blue sky thinking': look up at the vapour trails in the azure heavens for inspiration on handling risk.
On the back of research into air accidents, which has repeatedly shown human error to be a prime cause, the aviation industry has introduced processes for minimising potentially catastrophic mistakes. Regular human factors training for airline staff is a Civil Aviation Authority requirement, and it should come as no surprise that a number of the world's leading academic authorities on human factor risk management (HFRM) should be specialists in the aviation field.
Yet putting in place a robust analytical framework for human risk management can be applied far more widely. As aviation gurus Triant Flouris and Ayse Küçük Yilmaz note in one of their papers, an effective HFRM model can provide a sustainable competitive advantage, critical to the success of any enterprise.
"HR risk was typically always handled through policy and management practice, but with analytics, the computer does all of the hard work," says Howard McMinn, workforce analytics lead partner at business advisory firm, Deloitte. "It can allow businesses to identify and predict risks, or take mitigating actions very early on in the process."
Identifying risk has often been the preserve of an organisation's operations or finance department. But by taking a more serious, analytical approach to the crucial human aspect of risk, HR directors stand to have a greater say in business-critical, strategic decision-making.
In an ideal world, all employees would be beyond reproach and no employers would ever have cause to think ill of them. Unfortunately, in the real world, there are people with high-risk or extreme tendencies who may turn to financial crime or other forms of wrongdoing. The question is, can analytics help employers identify such people?
Psychometric assessments can provide a profile that highlights the underlying personality characteristics that could cause someone to derail in their job. Assessments can identify these characteristics early, enabling awareness, management and ultimately avoidance of derailment.
People intelligence company SHL has been working with three separate clients in the oil, security and construction sectors and, given growing client demand in this area, is planning to launch a risk index shortly.
"Analytics allows organisations to adopt a forward-looking, predictive approach based on quantitative evidence," asserts Howard McMinn, workforce analytics lead partner at business advisory firm Deloitte. "In the case of financial crime, or instances of rogue trading, analytics can help companies to 'join up the dots' to identify where and to what extent weaknesses lie within controls, governance or risk management practices. It can 'red-flag' traders who are behaving outside acceptable norms and help uncover activities that many organisations would be unaware of."
For example, it can highlight who has access and contact to the front and back office, or consider what the motivation and, thus, behaviour of the front office and control functions. Moreover, it can show which team members are consistently working outside office hours and failing to take required holiday periods. It can also, McMinn claims, address unexplained reasons behind trader performance surrounding value, volume and settlement periods.
"Analytics can be used to highlight the probability of fraudulent activity before it happens," McMinn asserts. "While there are strict rules and regulations in terms of how companies monitor their staff, analysis of combined datasets from risk, controls and governance with finance, trading and HR, can generate tell-tale signs of financial crime in advance."