Value Proposition for an Early Investment in Human Capital Analytics Capability


A few weeks ago I was visiting with an HR executive at a small but growing technology company who asked me about the value proposition for investing in a human capital analytics capability. The company uses analytics in its core business and the leadership team is inclined toward human capital analytics. In fact, it was ready to fund the development of such a capability within the company. My host was seeking an opinion on how a human capital analytics group could justify its existence so early in the company’s life. Here is what I told him, more or less.

The immediate returns to analytics are higher for larger companies (more data, larger dollar consequences of bad decisions, etc.) so unless there is a burning platform requiring instant attention, thoughtfulness at the outset about the size and nature of the investment is smart. Too many companies are jumping onto the human capital analytics bandwagon without adequate due diligence. “It’s the latest thing…everyone else is doing it…HR needs to be more strategic…we can be like Finance” – these are not useful considerations. Deciding to be an analytical function is a strategic move, not a tactical one.

With just a few thousand employees and a few years of history, there may not be a lot of data to generate compelling analytics initially, but given the expected growth trajectory, human capital analytics will become a critical management tool. Establishing a beach-head early in the game will catalyze the establishment of a human capital analytics infrastructure. Leveraging insights and support from the business analytics group will be important. There may be some healthy exchange of ideas, data, models and even people in the future.

Getting the systems plumbing into shape early on will pay large dividends later.  Pinning down data sources and integrating them across the enterprise for ready access by analysts can frustrate analytics initiatives in larger companies. It may be prudent to use the same analytical software or systems and database architectures as the business analytics group.  Advantages include price economies of scale on software licenses and lower barriers to collaboration between the human capital and business analytics groups.

Another aspect of establishing the infrastructure in terms of the data themselves is an emphasis on data collection – the importance of actually collecting data and ensuring their quality. The power of human capital analytics is often constrained by the lack of important individual-level human capital information such as education, certifications, previous employment history, etc. Data considerations encompass information on candidates, employees and terminations.  Adjusting processes to generate relevant data and systems to accommodate the data would be important first steps.

Employee perspectives are an important dimension of human capital analytics. They provide a barometer of employee sentiment, engagement and alignment. Employee sensing helps to prioritize programs, capitalize on employee preferences and even predict responses to environmental or programmatic changes. A nascent human capital analytics function can begin to design appropriate employee surveys and other employee-sensing approaches. The longer the time-series data on employee perspectives, the more useful are the overall data. Too many companies don’t ask the right questions or ask the right questions in a way that proscribes the analysis. A thoughtfully designed employee survey approach yields richer and more useful information.

Starting a human capital analytics function early in a company’s life-cycle allows for the function to evolve according to the needs of the organization. Initially, a centralized function can build the infrastructure and set standards for data, analyses and reporting. Once the company’s divisions and geographies are large enough to need and sustain their own analytical functions, the analytics capabilities can be decentralized. The analysts are closer to the people and business and are able to provide customized immediate and local decision-making support.

Introducing the culture of fact-based analysis and evidence-based decision making within HR will lay the foundation for a sophisticated and savvy HR function that is attuned to the way business decisions are made. Analytic capability can be built up as a core competency within HR. It will be important, however, for HR not to succumb to extreme reliance on numbers and technical analysis. It will then be indistinguishable from Finance! Too often in the rush toward human capital analytics adoption, HR’s consummate skills in working with individuals and teams and managing all the “soft squishy stuff” (culture, motivation, performance, etc.) is overlooked and undervalued.

It is worthy of note that the company’s leadership looked to HR – and more specifically to the compensation and benefits function – to develop the human capital analytics capability rather than the established business analytics group (here’s why that’s a smart idea). In most companies, HR might not even be considered for this leadership role since analytical capabilities, especially at the level required for serious analytical work, is seldom available in HR (that’s just one of our problems). However, there are some rare finds in the labor market that combine analytical abilities with HR experience.

Last but not least, to maintain leadership’s buy-in and support of the human capital analytics function, it will be important to help make decisions and solve problems rather than just provide reports. The initial focus should be on tackling important issues through innovative data collection, smart analysis and sober (i.e., not “Look at these fantastic β’s!!!”) presentation. Beware an initial focus on dashboards.  Regular, standard reports tend to lose their gloss after the first few installments and tend to be filed away very quickly.  The sure way to make the business leaders feel they have made the right decision with regard to their early analytics investment (and to ensure continued and even increased funding!) is to have deliver a sound and high-impact business result.

 

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About thenelsontouch

Amit is the founder and managing director of Nelson Touch Consulting, a management consultancy that specializes in maximizing the return on human capital through strategy, incentives and analytics.
This entry was posted in Analytics, Leadership, Organization Design, Strategy and tagged , , , , . Bookmark the permalink.

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