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Organizations increasingly rely on advanced analytics to make better, more strategic business decisions. The “data revolution” is transforming the way companies operate, and the effects are being felt in every industry, at all levels, and in every department, including the human resource department. Leading-edge companies are already tapping the potential of advanced analytics to improve talent acquisition, employee engagement, retention, and talent development. By and large, however, most HR and talent management professionals are not applying advanced analytics to their organization’s biggest asset—its people. As organizations become more data-driven and business leaders become more sophisticated in how they use data to drive decisions, there will be an expectation that HR professionals adopt human capital analytics.
The Drive to Capture Human Capital Analytics
Human capital analytics is the application of sophisticated data mining and business analytics techniques to human resource data. The collection and analyzing of data in human resources is not new, but several trends have helped accelerate the growth of human capital analytics. First, the amount of data available to companies is growing exponentially and will continue to grow for the foreseeable future. In addition, recent technologies have emerged to help companies capture unstructured data and combine it with structured data to provide new and valuable insights. Finally, cheaper, faster technologies have made it more affordable than ever to collect and analyze large data sets. These trends are all working together to create a brave new world for human resource professionals.
There are a number of factors driving the demand for human capital analytics. The predicted labor shortage was delayed a few years due to the recession, but baby boomers are starting to retire in larger numbers, and will continue to do so for years to come. With their retirement, employers will experience significant skills gaps and a loss of institutional knowledge. In addition, there are also widespread skilled labor shortages in certain industries, often in highly specialized sectors such as health care and IT, and in labor-intensive positions in industries like manufacturing and agriculture, and at both ends of the educational spectrum. These shortages will require HR and talent management professionals to dig deeper to find, keep, and develop talent.
Unlike the labor shortage that occurred during the economic boom of the late 1990s and early 2000s when companies invested more heavily in talent recruitment and development efforts, this one comes in the age of a new business austerity. In response to the recession, companies have made dramatic cuts and now demand greater accountability. Business leaders are looking more closely at data to drive better business decisions and expect metrics to demonstrate a return on investment. Yet according to PwC’s 15th Annual Global CEO Survey, of the 80 percent of CEOs who said they needed talent-related insights to make those decisions, only a small percentage actually receive it.
Those organizations that measure their talent management practices have seen their efforts pay off. A survey by i4cp, a human capital research firm headquartered in Seattle, Wash., found that high performing companies were more likely to measure their talent management practices than were lower performing ones.
The survey also found, however, that like the PwC study, few (only one in five) organizations actually have these measurements in place. There are several reasons why HR and talent management professionals may still be reluctant to measure human capital analytics. One reason may be that they do not understand the value of collecting and analyzing the data. To be clear, human capital analytics can help organizations make more informed business decisions about talent which can directly impact the bottom line. The i4cp study found that large companies which adopted a “data-driven decision making” approach saw productivity gains 5 to 6 percent higher than those who did not.
How to Start a Measurement Strategy
Measuring human capital can seem intimidating, particularly for organizations that have not started down that path, but it doesn’t have to be, particularly if HR and talent management professionals start small. Choose one investment to measure—for example, the efficacy of leadership training—from the design stage and use it as a pilot program.
HR and talent management professionals who are just entering the measurement arena should begin by collecting anecdotes and build from there for each investment they want to measure. As their comfort level grows, so too will the complexity of their measurements. For example, as anecdotes about the effectiveness of leadership development investment are compiled, additional, more direct questions naturally will arise that will be incorporated into the next investment, and so on.
While the strategy will grow over time, there are five key steps HR and talent management professionals should use from the start:
Step 1: Drive alignment with business goals.
Step 2: Establish business measures of success.
Step 3: Guide the development of content that’s aligned with business needs.
Step 4: Provide in-process measures for continuous improvement.
Step 5: Prove and improve.
When organizations adopt a measurement strategy using these five steps, measurement tends to catch and spread like wildfire.
Human capital analytics allow organizations to make more informed business decisions that improve the bottom line. Retiring baby boomers, a tightening labor market, and a new business austerity that demands data is pushing human capital analytics to the top of the HR to-do list. It is possible—and rewarding—to gather and analyze human capital metrics that will directly improve an organization’s performance. HR and talent management professionals must start measuring their talent development activities to prove their effectiveness and improve their organization’s competitive advantage.