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. However, most HR and talent management professionals are not applying advanced analytics to their organisation’s biggest asset—its people. As organizations become more data-driven, 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. Several trends have helped accelerate the growth of human capital analytics. First, the amount of data available 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 analyse large data sets.
There are a number of factors driving the demand for human capital analytics. 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 specialised 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.
Unlike the labor shortage that occurred during the economic boom of the late 1990s and early 2000s, this one comes in the age of a new business austerity. Business leaders are looking more closely at data to drive better business decisions and expect metrics to demonstrate a return on investment.
Those organizations that measure their talent management practices have seen their efforts pay off. A survey by i4cp found that high performing companies were more likely to measure their talent management practices than were lower performing ones. The survey also found that few (only one in five) organizations actually have these measurements in place. One reason may be that they do not understand the value of collecting and analyzing the data. 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 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 should begin by collecting anecdotes and build from there for each investment they want to measure. 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.
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.
Conclusion
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 to gather and analyse 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.
Authors
Kip Kelly is the director of marketing and public programmes for UNC executive development at Kenan Flager Business School.
Gene Pease is a professor at Kenan Flager Business School.