Words: Josh Bersin, Bersin by Deloitte
Illustration: Björn Öberg
For years companies have only harnessed a fraction of the potential of their HR departments. The key to unlocking the rest lies in analytics, according to Josh Bersin, Principal, Bersin by Deloitte, Deloitte Consulting LLP. Once the prerogative of marketing and sales, product development and finance, now the science is being adopted by those fuelling businesses with the best possible employees and striving to keep them there. After all, good employees don’t just reflect strong HR departments – they drive business success
A decade ago, HR was at the bottom of the totem pole of business. It was regarded as an administrative function. Today, though, it has become vastly more strategic than that. We’ve been tracking the whole issue for at least five years, and in the last year we’ve seen how much it’s picking up steam. The fact is that most business problems are now talent related, and because companies are so heavily invested in the service business, they have to take their people strategies much more seriously than they might have done in the past.
At the same time, we are undergoing a revolution in HR technologies, and with cloud-based systems now the mainstay, these are becoming much, much easier to implement. They’re also much more integrated, meaning that the data gathered is more reliable than ever. It used to be the case that companies had to purchase software, give it to their IT departments, wait for them to customise it accordingly, switch it on and then teach everybody how to use it. Frankly, by the time companies did all of that, their systems weren’t very useful and the data not very good.
What’s more, the whole concept of data analytics is changing. The traditional approach companies adopted was to build human resources data warehouses. Within these, companies would simply store all of the data about people from all of their systems (often using Excel, believe it or not). But that’s an old-fashioned way of thinking about analytics. The only thing it’s good for is analysing HR – it’s not good for analysing business at all. Now, HR is learning from marketing and sales, finance, product development and other such areas of business what analytics is actually all about. HR analytics – or ‘people analytics’ as we call it now – involves the transfer of people from these parts of business ready and willing to apply their knowledge of analytics to the people side.
HR is learning from marketing and sales, finance, product development and other such areas of business what analytics is actually all about
Where the concept of analytics in HR used to mean figuring out how to make HR better, now it is being applied to make business better. Companies are asking how they can improve sales and productivity, how they can reduce fraud, and how they can improve customer retention. The reality is that these are all critical business questions, and they’re all people related – every one of them.
The secret lies in being able to correlate the two – in being able to connect tenure with sales or training with performance, or any other such critical business binaries.
Every time a manager hires an employee, decides who to promote, decides to give somebody a raise, decides who to move to a new role, or decides who might be ready for a different assignment, they make a decision based on gut instinct every single time. Yet if they looked at the data available to them, they may well realise that the person in question is not typically the type of person that will succeed in the role.
There’s a vast amount of data that can make these kinds of judgements more accurate. As people we’re very biased. We tend to promote people who are like us, and we tend to replicate patterns that we’ve seen before because they worked in the past, but that doesn’t mean they’re right. So the data allows us to work around the biases people subconsciously have so that we as businesses can make more scientific decisions. The computer’s not going to make the decision as to who you should hire, but it is going to make it an easier decision.
There are three truly valuable things any HR department can do to leverage the power of their businesses from an analytical standpoint. The first is to look at sales productivity. Every company has a sales department, and they always experience productivity issues. It stands to reason, then, that this is a perfect opportunity for companies to assess their analytics expertise. Another is the leadership pipeline. It’s a huge issue in modern business. What are the characteristics, job assignments and backgrounds of the people who make it into successful leadership? The third consideration is turnover. Why do we have a high turnover in this department versus that department? In this manager versus that manager? In this city versus that city? Every company has these problems, and people analytics can add a lot of value in all three of those cases. It’s not a case of HR trying to do better HR; it’s about gaining credit for improving the business as a whole.
As an example, I once worked with a tech company that wanted to look into what’s known in HR as ‘toxic employees’. These are employees who regularly lie on the job, who cheat or who undertake what would be considered harassment. The tech company isolated which employees could be considered ‘toxic’, and then backed up and looked at the data they had collected during the recruiting process.
What they discovered was that they could actually predict, based on the employees’ answers to certain recruiting questions, whether they were likely to become ‘toxic employees’. And so the company was encouraged to change its hiring process to cover these questions earlier, allowing for better hiring decisions in the long term.
Another issue that is coming up all the time in business is the question of whether or not college degrees, categories and grade point averages lead to high performance. An insurance company we’ve worked with for years used to be a very traditional-thinking firm, hiring people out of Harvard and other such well-known colleges, putting them into rotational assignments earlier in their careers and giving them sales opportunities and so forth.
After analysing its data relating to education and performance, though, the company found that college degrees, categories and grade point averages had absolutely no correlation with performance during employees’ first five years there. In fact, the greater correlation was found in whether they had any typos on their résumés. Accordingly, the company completely changed its hiring process and opened it up, and others are doing the same all of the time. Deloitte UK has actually stopped using college degrees and grade point averages as hiring criteria.
Investing in intelligence
People analytics is still in its early stages, and not all companies have made the leap. What they tend to do is talk about it, but not actually do it. The truth is, people analytics takes investment, both time and money.
Large companies have access to vast amounts of data, but it’s traditionally been too messy, it’s been put into too many different systems, it’s been inaccurate, and it’s been difficult to use. The first thing they have to do, then, is clean up their data. That’s the biggest and often the most difficult aspect, and it’s what most often holds companies up. It usually takes one to two years or maybe even longer. Systems may need to be replaced and IT support may have to be sourced. If you don’t fund the project to create a clean, organised and manageable database, though, you won’t be doing analytics.
The return comes a little later. That’s the primary reason why so many companies are reluctant to commit to people analytics, instead deciding to focus on other projects. And yet a company wouldn’t dream of spending millions of dollars on a sales campaign or a marketing campaign without knowing the desired results.
Analytics has become fundamental in certain parts of business, and I think that within five to ten years it will be fundamental to HR – as much as it is in sales and marketing, product development and finance. All of the trends are moving in that direction; the technology vendors are getting closer and closer to delivering it out of the box; and there are more and more smart people operating in the fold.
I also believe that over time it might actually move out of HR and become more of an operational performance analytics function. As I’ve mentioned, the real value in people analytics is taking the HR data and using it to improve things like delivery performance, sales performance, turnover – really every possible aspect of business. To this end, HR should be providing data and giving context for it, but it’s actually more of an operational analytics discipline.
That’s still a few years away for most companies, though. Right now the focus should be on getting data cleaned up and making sense of it. Companies are looking to invest in teams of people doing analytics work in lots of different areas of business, and bringing them together to work on people as a group.
HR has become a crucial strategic part of business over the last couple of years. Good specialists make a lot of money, and they’re especially sought after, particularly in tech and software companies – places in which there are a lot of people issues, challenging people and competition. I’ve been in HR for almost two decades now, and every single year I’ve seen an upturn in the importance of HR and talent issues to business.
It’s always important to remember, though, that you’ll never replace human judgement in people decisions; there’s always a need for human judgement. But what the data gives us as people and as businesses is much more intelligence.
Where the concept of analytics in HR used to mean figuring out how to make HR better, now it is being applied to make business better
Data analytics gives organisations the opportunity to not only measure the effectiveness of their incentive plans, but also understand employees’ behaviours, says Michele Cassano, Equatex Group Strategy Head
At Equatex, we really want to understand why clients are launching compensation plans, whether it is for retaining people or hiring the best talent in a certain country. We currently offer standard reporting to all our clients through EquatePlus (Equatex’s platform for equity-based compensation), but we are also moving towards offering a more dynamic and customisable solution.
There is a wealth of data held on EquatePlus about plan participants that can be used to assess, for example, how the plan is working during its life cycle, how many participants there are in a specific country, and what the participants’ behaviours are over time. EquatePlus operates as a centre of information for different countries and business divisions within a company. Combining all this data creates a lot of intelligence, and if HR departments have this information, they can really understand the impact of their incentive plans and whether the business’s objectives are being met.
Say, for example, a multinational organisation decides to launch a specific purchase plan for its US population to bring company culture more in line with its European HQ. After the plan is launched, the company could establish who was investing and if it is the same for all regions and business functions.
Equatex’s new data and analytics team is working on a fully automated solution for clients to analyse the platform’s data, measure success and see what further action is required. Clients will be able to use the data to make decisions that will give value back to their entire company. We are working with first-in-class reporting software and our intention is to offer this solution to clients in the future.
The coming 4th industrial revolution is going to be driven by extreme automation and big data. We want to be on top of this trend and provide automated data analytics to our clients. We also believe that people will always make a difference to companies and we want to give our clients the instruments to understand how their employees are behaving and reacting to companies’ decisions, and I think that is really important.
Josh Bersin is a Principal with Bersin by Deloitte, which provides research and advisory services focused on corporate learning, human resources and talent management. His education includes a B.S. in Engineering from Cornell University, and M.S. in Engineering from Stanford University, and an MBA from the Haas School of Business at the University of California, Berkeley. Josh is a frequent speaker at industry events, has been quoted on talent management topics in key media, and is a regular contributor to Forbes.
For more information, visit home.bersin.com or follow Bersin by Deloitte @Bersin or Josh @Josh_Bersin on Twitter.
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