One of the ironies of the Internet age is that instead of reducing dependence on people, pervasive technology has validated the irreplaceable worth of human talent. More than ever, an organisation's real value resides in the ability of its people. With employee costs often exceeding 40% of corporate expenses, this carries significant implications for HR professionals.
HR technology initiatives have largely focused on the automation of classic clerical functions such as payroll and benefit administration. These systems have delivered significant measurable value - yet larger challenges remain.
As companies evolve from automating HR management to managing their human capital, HR professionals face a more strategic set of requirements. We need a clearer picture of how human capital management initiatives add value to the organisation.
This requires HR analytics - an entirely new class of systems that aggregate not just HR but company-wide data, including financial, customer, and supplier information, for exploration, analysis and presentation. HR analytics supports rapid, fact-based decisions backed by quantifiable, accurate information and defensible forecasts.
Human capital analytics helps identify essential insights that allow organisations to proactively apply strategic human capital initiatives to help meet corporate objectives, such as:
* Identifying workforce trends and forecasting changes before they happen;
* Quantifying bottom line impact of HR processes;
* Discovering potential problems and unusual patterns before they materialise and adversely impact the organisation;
* Modelling voluntary turnover and performance abilities to proactively identify key talent for retention and/or leadership development;
* Anticipating, forecasting and predicting changes in human capital resources - within the organisation and in the changing economic environment; and
* Enabling HR to clearly demonstrate its contribution to achieving corporate goals.
This last item is especially important because HR executives cannot have a proportionate level of influence in corporate decisions and policies until they offer compelling and clear data that supports fact-based decision-making. Properly aggregated, human capital analytics data becomes information that can provide valuable insights. Users can easily view information from multiple perspectives as business needs change, or as the underlying information changes.
For example, if a user wants to see a list of promotions in 2002 for females in a particular line of business or location, she can easily retrieve that information from one table of information - without necessitating any IT involvement. There is no need to search multiple systems and databases and laboriously join it all in one place. The task is already complete, saving time, resources and money.
To become a strategic partner in the organisation, HR must be able to accurately analyse and view information in ways not previously possible. Human capital analytics means pulling information from all sources, adequately summarising it and accurately combining it to gain answers.
Effective HR analytics enables you to analyse metrics against ad hoc analysis as well as pre-defined measures. For example, you may want to compare turnover as it relates to voluntary separation, involuntary separation and churn. You may then want to calculate the rate at which each type of turnover occurs based on employee demographics such as age, ethnicity and years of service, skill level or competencies.
With this kind of metric-based analysis, you can better determine how to become the employer of choice, inspire employee loyalty, motivate best efforts, and achieve world-class customer service. This analysis also helps you measure the financial effectiveness of ongoing HR processes and major projects, such as mergers and acquisitions or restructuring.
Anticipating change is one of the most difficult challenges organisations face. Traditional accounting methods that focus on what happened in the past to predict the future don't account for the rapidly changing economic environment. HR analytics lets you build models that look for unusual patterns in data and statistically validate behaviours.
Consider voluntary turnover. Undesirable turnover imposes very tangible increased recruiting and training costs plus the intangible costs associated with the loss of knowledge capital. It is therefore important to measure and predict turnover, understand factors attributing to it, and design programmes for controlling and preventing it within targeted talent/knowledge levels.
Human capital analytics can deliver standard reports that measure turnover as well as portray relationships among selected employee characteristics and the event of voluntary termination. A report from this model shows the degree to which various characteristics such as salary, educational level, skills or length of service contribute to turnover. Additionally, employees can be individually ranked based on an assigned probability that they will voluntarily terminate within a specific time frame.
Once you identify the behavioural characteristics of those employees most likely to leave, you can accurately anticipate changes and adopt plans to prevent them from leaving, and/or proactively mitigate the impact of those departures. Succession planning can become more effective. If individuals identified as most likely to leave are part of the organisation's elite, strategies must be put into place to retain them.
HR departments also need to regularly and objectively measure the organisation's performance against competitors' benchmark data. This is essential for proactively managing employee relationships - particularly for your top talent that is most likely to be courted by your competitors.
The key performance indicators that are measured will vary based on your industry and your company's own unique requirements, but often may include some of the following: return on investment (ROI) per employee, turnover rate, cost-per-hire and other key performance indicators to support sound strategic business decisions.
The ability to compare internal HR metrics with the external benchmarking sources further enhances the value of workforce planning and helps HR executives validate the contributions of HR to corporate goals.
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