The Value of HR Analytics: Why Every Company Should Be A Quantified Organization
Since joining Visier, I’ve been thinking a lot about the value of workforce analytics. I came to this organization because in my prior life as a researcher, my core focus was HR technology adoption and the value organizations derive from it.
In fact, a consistent finding from the annual Sierra-Cedar HR Systems Survey (which I managed for 16 years) was that “organizations with workforce analytics outperform.”
The above finding was obtained using aggregated data from publicly-traded survey respondents who provided financial data so we could report on their financial performance. Out of 350 organizations that participated in the study, 29 were identified as Quantified Organizations (QO) — that is, organizations that are data-driven in their decision making.
Four Characteristics of Quantified Organizations
The 29 organizations were chosen based on their leadership in the following four areas:
1. Business Intelligence (BI) Process Maturity
Does the organization use some form of BI or workforce analytics in a way that is effective (aligned, best practice, strategically focused) or transformational (unique, stands above others, and contributes to competitive advantage)? Organizations were scored on a five-point scale, with QO’s scoring 3.2 and showing that they are both effective and transformational in their ability to do analyses.
2. Manager Access to Analytics
QO’s provide managers with direct access to analytics rather than funneling it through analytics specialists. In 2014, the average manager usage for all survey respondents was 20% — QO’s had an outstanding average of 74% of their managers directly accessing business intelligence and analytics to support their decision making.
3. Data Sources
Organizations with twice as many data sources are more “quantified” in their ability to juxtapose workforce data (including core HR, talent management, workforce management, financials, and operational systems) and show the impact of the workforce on business results.
4. Metrics Categories
At Sierra-Cedar, we identified six metric categories that help organizations optimize their workforce, and included these in the survey questions. We found that QO’s used 50% more metrics categories than other organizations.
The Value of HR Analytics
Earlier I said that “organizations with workforce analytics outperform,” but what does “outperforming” mean exactly?
Outperformance is measured in terms of a higher Return On Equity (ROE), which quantifies an organization’s success at generating profits from every unit of shareholder equity, such as that allocated to HR technologies (including the spend on workforce analytics). A company that earns ROE in excess of its cost of equity capital has added value.
QO’s saw a 79% higher ROE than all other organizations according to the 2014-2015 survey results, suggesting that leadership in HR analytics enables outperformance.
In 2013, Bersin by Deloitte research showed that the stock prices of companies with high impact talent analytics outperformed their peers by 30% over the previous three years. Also in 2013, the CEB Analytics Survey found that organizations moving from median to leadership in workforce analytics improved their talent outcomes by 12%, leading to a 4% improvement in gross profit margin. This translates into $12.8 million in savings for every $1 billion in revenue!
I believe that Visier customers are also outperforming other organizations and achieving competitive advantage as a result of their early adoption into people analytics solutions (which support both HR analytics and strategic workforce planning).
Is It Time For You To Buy In?
While important, do the HR Systems Survey findings serve as a compelling rationale to buy a dedicated workforce analytics solution?
Perhaps. Perhaps not.
When we look at market adoption, we’re still in the early days for this technology, but this will not be the case for long.
Innovators and early adopters implicitly understand that analytics provides a strong competitive advantage. But for the next set of adopters — the early majority — what arguments will help them make their business case for buying a people analytics solution?
From Visier’s standpoint, we can share stories such as:
- A financial organization with 2000 employees (the result of a merger) used workforce analytics to lower employee turnover and save $500,000 via reduced recruiting and training costs and lost productivity as new hires come up to speed
- A professional services organization using the Visier people analytics solution to fine tune its staffing of contractors, saved millions by pulling levers of pay and skill enhancement to get the right set of talent on its contracts and improved its margins.
- Productivity savings in the “time to intelligence” for HR analytics teams from countless customers in all industries. They have significantly improved the quality of their reporting and analytics through use of Visier.
I’d love to hear your opinions on this subject. Please leave me a comment below or you can connect with me on Twitter.
Note: The first image used in this post is from the Sierra-Cedar HR Systems Survey and the second image is attributed to Everett Rogers, the originator of the Diffusion of Innovation theory.
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