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Human Resources Analytics provides organizations with a comprehensive analysis on HR initiatives and workforce performance. It integrates data from across the organization value chain changing silos of information into actionable insight. For example, with HR analytics managers can improve their understanding of the impact of compensation on employee performance by correlating total compensation with performance metrics and turnover metrics.All users receive relevant information directly through customized metrics, and alerts. It is a modular component of Business Intelligence Applications-pre-built analytic solutions to provide robust financial information across the value chain to enhance strategic analysis.
HR functions are found to collect data on their efficiency only and not on the business impact of their interventions. If HR wants to become a strategic partner in the organization it needs to develop measure how human capital decisions affect the business and vice-versa
HR analytics is like demonstrating the direct impact of people data on important business outcomes, the reality is that organizations already spend significant dollars on employees (Bordeau and Ranwiad, 2001). The problem isn't that senior executives are not willing to invest in people. The problem is that those investments are not backed by quantifiable data to justify their worth.
Identifying the need for HR Analytics
Many recent studies argue that HR needs to become a strategic partner. Recent research suggests, however, that HR is not making much progress toward becoming a strategic partner despite the belief by HR professionals that it should (Lawler. & (2003a). Because of the growing importance of human capital in determining organizational effectiveness, HR can play a key role in developing and implementing corporate strategy and become a high-value-added part of organizations (Lawler.E.E. (2003)).
HR as a Strategic Partner
HR as a function if it can perform strategic analytics is most likely to be positioned as a strategic partner. Having analytic data about the strategy of the organization is a powerful way to achieve the tag instead of maintaining a record of the HR function alone . Thus it appears that "all" HR has to do to become a strategic partner is to develop better HR metrics and analytics with respect to organizational effectiveness and strategy.
Accommodate evolving organizations
To become a strategic partner HR must be able to analyze information in ways not discussed or looked into previously. For instance, "How many employees do we have enterprise-wide?" , "How many employees are on a sabbatical/Medical leave" , are insufficient questions for analysis. What HR Analytics does it pulls this information from all sources, summarizing the information, and combining it in a way that accurately and comprehensively reflects a true headcount. In the virtual era where organizational spread goes beyond the geographical office space a robust data set which gives all required information within no time on a mouse clickcan help HR make decisions strategically rather than reactively.
Build business cases supported by metrics
Effective HR analytics helps to analyze metrics against ad hoc analysis as well as pre-defined measures. For example, one may want to compare turnover as it relates to voluntary and involuntary separation, and churn. One may then want to calculate the frequency of occurrence of each type of turnover based on employee demographics. With this kind of metric-based analysis, it becomes easier to determine how one can become the employer of choice, motivate best efforts, inspire employee loyalty, and strategically achieve world-class customer service. This also helps to measure the financial effectiveness of ongoing HR interventions and major projects, such as restructuring or mergers/acquisitions.
Anticipate and respond to changes
Anticipating changes one of the most difficult challenges organizations face. Traditional accounting methods that focus on what happened in the past to predict the future cannot be relied upon in a rapidly changing economic environment. HR analytics enables organizations to build models that statistically validate behaviors as well as look for unusual patterns in data.
Taking one of the most common issues facing HR: voluntary turnover. This unforeseen turnover imposes a tangible increase in recruiting and training costs plus the intangible costs associated with the loss of knowledge capital. For these reasons, it is important to measure and predict turnover, understand factors attributing to it, and design programs for controlling and preventing it within targeted talent/knowledge levels gives the organization a strategic edge.
HR analytics can deliver reports that measure turnover and simultaneously portray relationships among certain employee characteristics and the eventual voluntary termination. Once the behavioral characteristics of those employees most likely to leave have been identified and established, it becomes feasible for the department to accurately anticipate changes and adopt plans to prevent the same. Succession planning can also be made more effective.
Compete through hr
Competitive pressures are reaching HR departments, but how does the organization know where it stands, unless they regularly, frequently, and objectively measure organizationÂ´s performance against competitorsÂ´ benchmark data? This information is essential for proactively managing employee relationships - particularly for the top talent that is most likely to be poached. The metrics are customized to suit companyÂ´s own unique requirements, but often they may include some of the following common measures: turnover rate , return on investment (ROI) per employee, cost-per-hire and other similar performance indicators to support strategic business decisions. The ability to compare internal HR metrics with the external benchmarking sources further enhances the value of workforce planning and how HR executives can validate the contribution of HR to corporate goals.
Bottom Line value of HR Analytics
An irony of the Internet age is that although on the surface it pretends to reduce our dependence on Humans deep inside it actually refurbishes the need for irreplaceable talent to manage the same. It has been noted that nowadays an organizationÂ´s real value resides in the willingness and ability of its people to share their intelligence, skills, collective experience, attitudes, and abilities. With employee costs often exceeding 40 percent of corporate expenses, this new truth carries significant implications for human resources professionals. To this point, technology initiatives in the HR arena have largely focused on the automation of classic clerical functions such as payroll, self-service benefits administration, resume filtering, and succession planning. These systems have delivered significant measurable value - yet larger challenges remain. As companies undertake the strategic evolution 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 organization in order to amplify/accelerate those that add the most value or profitability. 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.
This represents a significant breakthrough for the HR function. Other areas of the enterprise - such as marketing or manufacturing -- have embraced the power of analytics to identify profitable customers or streamline supply chains and inventory management. Now, that same power becomes available to HR professionals. When working with human capital information, as much as 80 percent of time can be spent acquiring, aggregating, and manipulating data, leaving only 20 percent of the time for the value-added analysis. Human capital analytics flips that 80/20 ratio on its head, helping you identify essential insights that allow organizations to proactively apply strategic human capital initiatives to help meet corporate objectives.
In many respects the "Holy Grail" for HR as a function is the ability to show the bottom-line impact of their activities. This is a powerful way to increase HR's influence on tactical and strategical business decisions.
Kinds of Metrics
Organizations can collect three different kinds of metrics to understand and evaluate the impact of HR activities and influence business performance namely efficiency, effectiveness, and impact.
The first kind is easiest to collect and concerns the efficiency of the HR function-in particular, how well the HR function performs its administrative tasks. The metrics that can be collected in order to assess HR efficiency include productivity and cost metrics for the HR function such as lime to fill open positions. HR headcount ratios, and administrative cost per employee. A comprehensive set of metrics can be produced to evaluate HR's administrative activities that in effect evaluates it as a stand-alone business. A key issue in evaluating the data gathered with respect to HR administration concerns normative data. Multi-company databases now exist that make it possible for organizations to compare their metrics data with those of other companies. Organizations with good metrics and normative data can make a good assessment of the performance of their HR function.
The second kind of HR metrics uses on effectiveness: whether HR practices have the intended effect on the people or talent pools toward which they are directed. In the case of training and development true effectiveness metrics should offer information on whether employees build needed skills not just on participation in training programs but also on employee and management satisfaction with the training provided. Measuring only participation in HR programs offers no insight into program effectiveness. While satisfaction surveys can be a useful tool for gauging the alignment between HR services and the opinions of HR's customers, they fall short of providing the needed insights into the real impact of HR programs and practices. A potentially meaningful set of effectiveness metrics for the HR function concerns talent and talent management. In most organizations HR has the lead responsibility for acquiring, developing, and helping to deploy talent. In order to assess how well organizations are carrying out this responsibility, measures of talent quality, talent development, and talent deployment are needed. Typical metrics in this area include measures of the strategic skills and core competences embodied in the work force, as well as metrics that classify how well pivotal jobs are filled and the type of development activities that are taking place for critical talent (Becker & Hustled 1998).
Business strategies that make incorrect assumptions about the ability of an organization to staff critical jobs and develop new areas of expertise that support the strategy are expected to fail. Similarly, organizations that are not staffed with the right talent will have great difficulty implementing new strategies and organizational changes.
Finally, metrics have developing and optimizing the capabilities and the core competencies of the organization can be collected in order to measure the impact of HR programs and practices (Lawler. 2003). Impact in this case means demonstrating a link between what HR does and tangible effects on the organization's ability to gain and sustain competitive advantage. Operational effectiveness impact metrics might focus on changes in the performance of business processes (e.g. reduced defects, frequent innovations) that occur when the quality of talent or HR processes are improved.