Question for your HR chief: Are we using our ‘people data’ to create
value?
By
analyzing the links between people practices and productivity, some companies
are improving their bottom line.
Human-resources executives have aspired to be strategic advisers to business
leaders for at least a generation. But it’s been a struggle for many because
it’s so difficult to measure the business value of HR approaches. Questions
such as “What is the ROI1of training?” and
“Which screening techniques yield the best performing recruits?” or “What
target-setting approach will best motivate performance?” have been met with
imprecise answers.
Today, however, new
tools and methods for analyzing data enable HR to define the link between “people practices” and performance more effectively. This
couldn’t have happened at a better time, since CEOs are hunting for value anywhere
they can find it. The upshot: if you and your head of HR haven’t recently
discussed ideas for using data to generate a talent strategy that’s more
closely linked to business results, it’s time to start.
Why now? For starters,
the widespread adoption of enterprise resource planning and HR information systems has made data on business operations, performance,
and personnel more accessible and standardized. Furthermore, the rise of HR
information systems has generated a community of software and technology
intermediaries that can help HR and business executives use data to find links
between talent management and labor productivity. Finally, the consolidation
and outsourcing of transactional HR work has compelled many leaders of the
function to take a first step toward quantifying and reporting HR costs and
performance.
These trends, coupled
with the universal imperative to get more for less, have led some companies to
discover new ways of using HR analytics to create value. The Bon-Ton chain of more than 280 department stores
in the United States, for example, leveraged its data to identify attributes
that made cosmetics sales reps successful. Now it screens potential reps using
a test of cognitive ability, situational judgment, initiative taking, and other
relevant traits. Those who score in the top half tend to sell 10 percent more
product than the others and tend to like their work more. Since 2008, the chain
has seen an increase of $1,400 in sales per representative and 25 percent lower
turnover among them.
Other pioneers are
emerging, particularly in industries where people are central to value creation
(notably banking, health care, and retailing) and where scarce technical
expertise governs growth (such as technology and upstream oil exploration).
While the specific people-related practices that add value will differ by company—industry
dynamics, talent scarcity, growth rates, and corporate cultures all influence
the answers—the organizations that we’ve seen get the most value from investing
in HR analytics all use some variation of these four steps.
1. Focus HR on business priorities
Most HR teams view,
organize, and measure their activities through the traditional employee life
cycle: starting with recruiting, hiring, and “on-boarding” and proceeding to
evaluation, training, and development. For HR analytics efforts to work, however,
the function’s leaders must view problems—and value creation opportunities—as
business leaders do.
Executives at
Pittsburgh-based PNC Financial Services, for example, suspected that their
tendency to pick experienced outsiders over internal candidates in hiring
decisions might be hurting the bank: once hired, the outsiders were too often
viewed as lukewarm performers. So in 2009, PNC’s HR team partnered with
colleagues from the company’s marketing-analytics group to analyze the sales
performance, over several years, of external hires versus people promoted from
inside. What the team found confirmed the suspicions: in a number of key job
categories, internal candidates were significantly more productive in their
first year than experienced external hires. In subsequent years, the outsiders
narrowed—but never closed—the gap. Millions of dollars in value were at stake.
It’s unusual for
business or HR leaders to spot pain points such as these on their own.
Typically, a strong partnership is crucial for identifying and prioritizing
issues that intertwine people challenges and business results. PNC’s team, for
example, asked line executives what they saw as the highest-value opportunities
for improving talent management. From these discussions, the analytics team
distilled a top-20 list of business questions and hypotheses to test, such as
“What is the business impact of training investment?” and “Is there an optimal
distribution of performance ratings?” The PNC team then ranked the resulting
list of issues by their expected business impact and the feasibility of
conducting meaningful analysis. “This is where HR has the chance to prove
itself,” says Jay Wilkinson, PNC’s new HR vice president of analytics. “Better
than coming to [business leaders] with tired best practices, we’re asking them
how they define success specific to their business, and that provides the
context for our analysis and recommendations.”
Google is another
company with an HR team that partners with business leaders seeking analytic
insights. According to Prasad Setty, head of Google’s people analytics group,
“We are looking to inform decision makers with data so they can be as objective
and bias free as possible.” Setty’s team has, for example, provided business
executives with a systematic approach to reassessing provisionally rejected
candidates. The team’s analysis of profiles that lead to success at Google
helps it identify potential false negatives and to revisit these candidates.
This technique has helped the company “save” many hires it would otherwise have
missed.
2. Start with what you have
Quantitative
problem-solving skills may be hard to come by in the HR department. Therefore,
senior executives who are eager to begin should push their HR leaders to draw
in analytical resources wherever they exist. All that’s required is the ability
to engage business leaders in efforts to identify issues and structure problems
in a nuanced way and then to follow through with advanced data gathering and
statistical analysis.
Retailers, for example,
typically entrust analytics to store operations analysts who understand the
high priority the business places on containing labor costs. PNC’s capability
emerged from its marketing-analytics group. Other companies lean on finance or
strategic planning. Most pull the necessary people into the HR function over
time, as PNC did in the course of a year when it decided to build a specialized
HR analytics department.
And remember: many
analyses can be conducted using existing data and systems. Some work may be needed
to match payroll data or training-attendance rosters with sales performance
results, for example, but creative, persistent analysts can answer most
business questions without new, sophisticated, or costly tools.
3. Go beyond traditional HR solutions
New insights often
require additional problem solving to go from theory to practical solutions. HR
analytics succeeds when human-resources and business leaders work together to address the root causes of
problems and to pilot new ways of solving them.
Google, for example,
did a study to examine whether good managers matter—and, if so, how—within
Google’s specific culture. Setty explains that “through various methods, we
found positive relationships between good management and retention and the
performance of teams. We then conducted double-blind interviews to identify the
key behaviors exhibited by our best managers. We found eight behaviors that
make a good manager and five pitfalls to avoid. These are now incorporated into
our manager-training programs and coaching sessions, and teams provide feedback
to managers on these behaviors to help them understand where they’re doing well
and where they can get better. The vast majority of our lower-rated managers
have improved as a result.”
4. Make it stick
Once a company has a
few successes with HR analytics, it can build a lasting source of value
creation by integrating analytics practitioners into its day-to-day business
and HR rhythms. Several companies, for example, have established a routine of
having HR or other “people strategy” staff join business reviews to identify
priorities for analysis. This practice helps senior line executives conduct
problem-solving discussions around HR-related issues and to plan for action as
findings emerge.
HR analytics
practitioners must also commit themselves to the habit of measuring and
reporting on success. At financial-services giant ING, for example, business
units and HR share a comprehensive dashboard, supplemented by regular reports,
to show progress on key metrics. Similarly, a global oil giant’s
people-strategy group reports progress at four stages of a project’s
development: data gathering, analysis, developing solutions, and piloting. This
approach helps HR and business leaders understand that progress is happening
even when stages may take weeks or months to complete. It also provides a
clearer understanding, in both directions, of changing priorities and emerging
findings from the work.
Advances in technology
are creating opportunities for senior business and HR leaders to start a new kind of
dialogue about the link
between people and performance. That dialogue will help HR executives
demonstrate the impact of their work and achieve their goal of strategic
partnership with other members of the senior-management team—and, of course, it
will create value for the enterprise.
By Nora Gardner, Devin McGranahan, and William Wolf
https://www.mckinsey.com/business-functions/organization/our-insights/question-for-your-hr-chief-are-we-using-our-people-data-to-create-value?cid=other-eml-nsl-mip-mck-oth-1805&hlkid=8ef3ca9687994301842c4bb8b6d06041&hctky=1627601&hdpid=d2485d50-8367-4043-9d84-a0e9fcfdab81
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