5 Tips to Make When Building a Business Case for People Analytics to Your CFO
When it comes to building a business case for people analytics, CHROs and HR directors need to be prepared. Here are five key points to take to the CFO.
The HR function has been undergoing a radical transformation for more than a decade. Much like the elevation of accounting leads into prominent CFO positions, or IT managers into CIO roles, the responsibilities of the modern CHRO have become business-critical as organizations look to navigate an influx of unprecedented workforce challenges.
Between a shrinking yet increasingly competitive labor market, rapidly evolving employee expectations, and an overall increased emphasis on social and governance initiatives, 60-80% of annual corporate budgets today are being spent on HR’s primary focus area: people.
Despite the undeniable transformation of the HR function, many CHROs still lack the tools and processes they need to truly maximize their positive strategic influence on the organization. More specifically, they have yet to convince the CFO and broader C-suite of the importance of people data and analytics to showcase people-related impacts on the organization and drive business success.
Here are five critical points to make when building the business case for people analytics to your CFO:
1. Corporations using people analytics have higher ROAs and profit margins
When considering an investment in people analytics, or any corporate investment for that matter, CFOs are primarily interested in understanding one specific thing: How will the financial performance of the company benefit from implementing this solution?
While it’s perfectly natural—and necessary—for a CFO to be laser-focused on the company's bottom-line, it can also lead to a tendency to write off the needs of HR as less important. So, it’s exceptionally important to communicate how using people analytics leads to objective, considerable financial gains and outperformance.
For example, in a 2021 survey on the value of people analytics maturity, Visier compared the financial performance of publicly-traded Visier customers to benchmark data on all organizations, as it related specifically to return on assets (ROA) and profit margins. In terms of ROA, Visier customers boasted an average of 4.5%, comfortably outperforming the benchmark figure of 1.9. As for profit margins, Visier customers’ average 8.8% margin again exceeded the benchmark reading of 5.1%.
These aren’t small discrepancies, and are the direct result of empowering HR professionals with access to comprehensive, actionable people-related insights and analytics capabilities.
Bottom line: Companies using people analytics financially outperform their peers, seeing higher returns on assets and higher profit margins.
2. Financial outperformance extends to return on equity and revenue per employee
While you’re on the subject of financial performance, it’s critical to communicate the full spectrum of potential benefits, and that the positive impacts of people analytics extend well beyond ROA and profit margins.
Take revenue per employee, for example. When your company makes a new hire, it does so on the assumption that the employee’s unique skill set and contributions to the business will result in additional revenue. But when you’re hiring in an environment of rapidly evolving employee expectations and sky-high turnover rates, that assumption becomes far less reliable, particularly when you don’t have the resources necessary to understand and mitigate these concerns.
When HR teams are equipped with the right data and insights, they can make better informed decisions during hiring, compensation reviews, and promotions, as well as help to mitigate risks in the business. In a Visier report on the financial impacts of people analytics, we uncovered a significant gap in revenue per employee when comparing publicly-traded Visier customers to all other U.S. organizations. Visier-empowered businesses generated an average of $775,364 per employee, whereas the others earned an average of nearly 20% less at $650,797.
Crucially, results from the same report showed Visier customers bringing in an average return on equity of 23.6% to 15.4% for all other organizations, another favorite metric of CFOs and a clear indicator of aggregate financial performance.
Bottom line: The positive financial impacts of people analytics have been shown to extend almost indiscriminately across key performance indicators, and will likely continue to increase as your organization’s capabilities mature.
3. People analytics helps organizations save on turnover-related costs
Organizations continue to address the fallout from “The Great Resignation,” in which 47 million workers voluntarily decided to leave their jobs in 2021, resulting in widespread labor shortages and an influx of turnover-related costs. Even a single employee’s departure can have a considerable financial impact and costs an average of close to $11,500 according to a survey by Predictive Index.
But as high as that seems, it only scratches the surface of actual turnover costs when all related factors are taken into consideration. In addition to the cost of resignation itself, Forbes reports that the cost of replacing a worker can be as high as two times the resigned employee’s salary, not to mention the negative impacts of rising turnover rates on overall productivity and employee morale.
High turnover costs and poor employee experiences are exactly the kinds of problems that people analytics can help businesses understand, and with positive results. For example, one financial institution with more than 5,000 employees leveraged people analytics to mitigate turnover and retention challenges. Not only was this organization able to measurably improve employee experiences, they were also able to increase new hire retention by 14%.
The company’s HR team used insights achieved through people analytics to evaluate each hiring manager’s time-to-hire rates, revealing persistent bottlenecks and inefficiencies in the hiring process. Additionally, by digging into data on new hires, they found a direct correlation between efficient hiring processes and positive retention, and in turn implemented a standardized hiring process and candidate experience based on these results.
Bottom line: Companies using people analytics save on turnover-related costs because they are able to anticipate turnover risks ahead.
4. People analytics teams are growing, and creating more value for empowered organizations
For executives who might be skeptical of the increasing role of people analytics in the HR function, it’s important to emphasize that people analytics utilization has been on the rise for years, and isn’t slowing down.
The average people analytics team size has grown. Team growth has been particularly steady for advanced organizations with strategically focused, competitive, and transformational capabilities, as opposed to those with less mature processes and solutions in place.
Even more critical than the size of the team is the breadth and quality of data and insights gained from people analytics. There’s been a notable reduction in the ratio of people analytics team members to the entire business being served, meaning the quality of insights allows organizations to remain productive and continue to create value with smaller teams.
Bottom line: The role of people analytics continues to expand. People analytics teams are getting larger, and they're delivering more value.
5. The cost of not using people analytics is steep—up to $1.8 Trillion
When making the business case for people analytics to the C-suite, the context in which you communicate your points is just as important as the information itself. There are five words that will grab the attention of any effective CFO:There’s money on the table. A lot of money, in fact.
Organizations across industry sectors continue to suffer from what experts call the “People Impact Gap.” In the most basic sense, it’s an observable gap between employees’ growing digital record in the form of raw data, and the answers people leaders need to make critical business decisions and achieve positive outcomes. There’s substantial financial opportunities available to businesses that work to close the People Impact Gap.
Research from Visier and the People Intelligence Alliance (PIA) found organizations that utilized people analytics effectively generated a revenue per employee that was $125,000 more than average. What’s more: there are 3,000 North American organizations with no or low ability to leverage people analytics, totaling a staggering $1.8 trillion in economic opportunity.
When business leaders understand the power of people analytics and how to use people data and insights, organizations are poised to strategically and effectively define expectations and meet key business goals leading to increased revenue and value.
Bottom line: A lack of data insights is costly, at $1.8 trillion. People analytics allows business leaders and HR to partner together to use data to meet business goals and increase revenue.
At the end of the day, it’s simply a matter of providing business leaders and managers with the insights necessary to make evidence-based decisions and to cultivate an environment in which there is little separation between the actions of talented people and the broader aspirations of the business.
When building a business case for people analytics to your CFO, make these five points clear:
Corporations using people analytics have higher ROAs and profit margins
Financial outperformance extends to return on equity and revenue per employee
People analytics helps organizations save on turnover-related costs
People analytics teams are growing, and creating more value for empowered organizations
The cost of not using people analytics is steep—up to $1.8 Trillion