10 Reasons to Shift to a Data-Driven HR Model

A survey from the prestigious Conference Board ranks Human Capital as the #1 challenge facing global CEOs.

At first glance, senior HR executives might take that top ranking as a positive thing. However, that would be a mistake because Human Capital was classified as a strategic challenge (not an asset) and it has, unfortunately, remained the number one CEO issue for the last four years running.

As a result of being the top challenge for such a long period of time, it is clear that CEOs and board members fully understand the value of Human Capital, but they have also learned to expect a higher rate of strategic change than most HR functions have been able to deliver.

In order to move from this “list of challenges” to the “corporate asset list,” I have found that HR and its key functions like recruiting, retention, and learning must move to dramatically increase their measurable business impacts by adopting analytics and data-driven decision-making. Unfortunately, a study by AICPA revealed that only 12% of CEO’s were confident with Human Capital metrics.

HR can’t become a high business impact function unless it adds analytic capabilities

One of the best ways to find out how to become more strategic is to analyze the characteristics of other well-respected and better-funded high business impact functions.

If you analyze functions like finance, supply chain, CRM, IT, and marketing you will find common key drivers of success. They include data-driven analytical decision-making, having everything digital and connected, showing in dollars how their actions directly impact strategic business goals, continuous improvement measures and being forward-looking.

Obviously, most HR functions have not yet shifted to this high business impact approach, but fortunately, there are a few benchmark firms like Google, Sodexo, and Netflix that have demonstrated the success of this new “data-driven high business impact” analytical approach to HR.

Before considering this major shift, senior HR executives need to fully understand the benefits that result from changing to this new model. They also need to be able to “sell” their corporate executives on the value of investing in this new HR approach.

In order to satisfy both these needs, the next section provides the top 10 most strategic reasons for shifting to a data-driven high business impact approach. I recommend that you start that transition in the highest impact area, which is recruiting, and then continue the transformation in the next highest impact areas of retention, learning and workforce productivity and innovation.

10 Reasons to shift to a data-driven HR model that drives high business impact

1. Analytics allow HR and its functions to measure and then increase its business impacts

For decades, HR has been satisfied with being “aligned” with corporate goals. However, in the highly competitive corporate world, CEOs now expect even overhead functions to directly impact key corporate goals including revenue, productivity, innovation, and market share.

Fortunately, when everything in HR is digital, prioritized and managed with data, HR can show where and how much it directly impacts strategic business goals. For example, by designing more effective recruiting, employee retention and reward systems, HR can directly increase the revenue of the sales group.

Everyone knows that the Holy Grail of business success is increasing corporate profits. So it is encouraging that a recent study by the Harvard Business Review group found that advanced user firms that “most effectively managed their workforce using analytics” improved their firm’s profit by as much as 65%.

2. Analytics allow HR and its functions to increase workforce productivity

Of all the strategic business goals, HR is unambiguously responsible for just one: increasing the productivity of the workforce.

By first requiring the output of each mission-critical job to be quantified, HR can then utilize analytics to identify the factors that directly increase productivity in each key job family (i.e. motivators, development approaches, rewards and management actions). Working with the CFO’s office, HR can also quantify the dollar impact of any increase in productivity as a result of, for example, better quality hires.

3. Analytics allow HR and its functions to contribute to an increase in corporate speed and adaptability

In a rapidly changing and volatile VUCA world, businesses can only succeed if they are fast and adapt quickly. HR can make a contribution to that effort by utilizing analytics to develop a hiring process that selects individuals with these two key skill sets.

Analytics can also be used to improve development and training processes in order to increase the speed and adaptability of current workers. Data can also alert managers on the appropriate ratio of employees to contingent workers so that the workforce can be flexible and rapidly adapt to the changing levels of business growth.

And finally, when HR demonstrates through its data-driven actions that we can increase organizational speed and therefore decrease a product’s time-to-market, everyone will recognize us as a corporate leader.

4. Analytics allow HR and its functions to contribute to increasing corporate innovation

If you look at the most valuable global firms by market cap (e.g. Apple, Google, Microsoft, Amazon, and Facebook) you’ll find that the one success factor that they share is serial innovation. As a result, increasing innovation is frequently a strategic corporate goal.

Analytics can help HR increase its contribution in this critical area by designing recruiting systems that effectively attract the best innovators. Analytics can also reveal the workplace factors like serendipitous interactions that directly increase collaboration and innovation among current employees. Data can also help HR to dramatically improve the retention of its innovators.

5. Data allows HR and its functions to more effectively influence managers

One of the most difficult problems in traditional Talent Management is how to get managers to follow HR’s advice and protocols. Fortunately, executives and managers are almost always fanatical about numbers. So numbers and dollars (i.e. the language of business) can be used to influence them and to change their behavior.

As Google has found, “The best thing about using data to influence managers is… it’s hard for them to contest it.” For example, you could get managers to listen more if you sold them that by improving their quality of hire by 10% that the revenue generated by their team would go up as much as $250,000 a year.

Quantifying the impact this way would instantly get most hiring managers to devote more effort to recruiting. Since CFO’s also love analytics, incorporating them into your plans and new program proposals will increase the likelihood that HR will get more funding from the CFO.

6. Predictive analytics prepare managers and HR for the future

The most impactful component of data-driven decision-making is the ability to predict trends and upcoming problems or opportunities in Talent Management.

Trends and data provide HR with an opportunity to stop guessing about the future. Data alerts you about shifts in historical talent patterns at your firm, which patterns will remain steady and which ones will dramatically change in the future. This forward-looking information can reduce risks by alerting decision-makers about upcoming problems, while there is still time to prevent or mitigate them.

7. Analytics allows HR to prioritize and funnel resources into the highest business impact areas

HR data will reveal which individual HR programs have the highest business impacts. With that information, HR leaders can more accurately allocate their HR budget and staff into the programs with the maximum impact. Data can also help HR identify the jobs, teams, and business units that, when provided with top talent, have the highest impact on corporate goals.

8. Analytics allows HR and its functions to identify which existing talent programs are not working

Analytics helps HR leaders discover which of their existing programs and tools are working and which ones are not. Analytics also allow you to assess the effectiveness of new programs. With its own ROI ratios, HR can also compare the effectiveness of its programs against those in competing functions like finance, marketing and IT. Under the analytics model, HR will also require all new talent programs to utilize data-driven decision-making and to include performance metrics and current and predictive analytics.

9. Analytics will identify the hidden causes of problems

You can’t really improve a problem area unless you know the root causes of the problem. HR must go beyond its current “what happened metrics” (i.e. our turnover is 12%) and begin gathering what I call “why metrics,” (i.e. 85% left because of bad managers). Knowing the root causes will enable HR to better understand what causes each people management problem. Knowing the underlying causes can save a great deal of time and money because you can avoid “wrong direction solutions” that don’t address the real underlying causes.

10. Data will increase hiring and recruiting efficiency

Research by the prestigious Boston Consulting Group found that the recruiting function had the highest impact on both corporate revenues and profit. As a result, it makes sense to apply analytics in this area.

First, realize that firms like Google have used data and correlations to better refine their hiring criteria. By dropping criteria that don’t predict, firms can dramatically improve the performance and the retention of new hires. Recruiting data can also identify the sources that produce the highest quality of hires (e.g. referrals from top-performing employees) and even which interview questions don’t predict new hire success (e.g. brainteaser questions).

And finally, by multiplying the percent improvement in new hire performance by the annual average revenue per employee number, the recruiting function at large corporations can assign a multimillion-dollar amount to their business impact.

Final thoughts

Years ago, the business world shifted to what is now called big data (an approach that relies on analytics to improve every aspect of business decision-making). And the time is long overdue for HR and each of its functions to also make the shift to its own form of data-driven decision making.

To begin with, shifting to this new model will allow HR to more effectively interact and share data with all other business functions. By freely being able to share data, HR will better be able to understand their needs and to provide improved service to all other business functions.

In addition, the widespread use of analytics will allow HR to understand the underlying root causes of talent problems and the factors that make effective people management programs work. With this knowledge, HR will have an improved capability to design new talent programs and processes that will measurably increase productivity, innovation, and revenue.

Throughout the HR world, very few VP’s of HR or HR thought leaders doubted that this shift to analytics would occur. The only remaining question is when it will occur at your firm?