The Importance of Human Capital Analytics ¶

I have deep respect and admiration for HR Managers.

Why?

I think HR Managers perform the most difficult task in the organization. Operations tasks can be quantified in terms of quantity of goods produced. Marketing tasks can be quantified in terms of the quantity of goods sold. Finance tasks can be quantified in terms of Assets and Liabilities, Profit and Loss. But how do you quantify HR tasks?

How do you quantify human potential, human performance and human satisfaction? How do you quantify leadership, teamwork, conflicts, loyalty and ambition? All these are intangibles. And it is very difficult to quantify and measure them in terms of numbers.

Yet, that is the challenge before HR Managers today!!! The CEO is asking --- What is the offer acceptance rate? What is the recruitment cost? What is the revenue per employee? What is the cost of retention? What is the attrition rate? What is the cost of replacement? And the CHRO (Chief Human Resource Officer) must have answers to these questions at her fingertips.

The answer to all these questions lie in Human Capital Analytics. Analytics has now opened up several avenues and opportunities for HR Managers to accurately predict and forecast future outcomes as well as mitigate the chances of risk. With powerful technologies and softwares available at hand, the focus has now shifted to know and understand which tools and technologies will be adept in resolving the particular type of challenges.

Gitali Halder and Anindya Dey, two data scientists working at Hewlett Packard, developed a model called ‘Flight Risk’ which can accurately predict when an employee is likely to leave the organization. This is done by analyzing data like tenure, performance, time between promotions, compensation packages and other factors that are associated with workforce analytics.

Los Angeles Police Department (LAPD) has successfully used analytics to reduce crime and also prevent crime before it actually happens. They are using algorithms to do predictive policing. They use a software called PredPol which can predict where and when crime is most likely to occur. The results have been amazing --- there has been a 33% reduction in burglaries, 21% reduction in violent crimes and 12% reduction in property crime in the areas where the predictive software is being used.

The book “Moneyball” , which has later been made into a movie starring Brad Pitt, has shown that you can get talented players at lower costs using a statistical analytics model called ‘Sabermetrics’ and win games against teams which have acquired star players at exorbitant costs. Google has shown that you can win the “Best Place to Work” award year after year using analytics and also retain your best performers for long tenures. Infosys has demonstrated that by using algorithms, you can make the best use of employees who are in bench and also drive up your revenue per employee.

A study done by MIT and IBM has established that companies with a high level of HR Analytics had 8% higher sales growth, 24% higher net operating income and 58% higher sales per employee. Human Capital Analytics is contributing in a big way to the overall development of every organization. Human Capital Analytics helps in talent retention and cutting down attrition rate. It helps to forecast workforce requirements and proper utilization of existing manpower for improved business performance. It can help to align the employee’s aspirations with the organizational goals to achieve higher level of job satisfaction. It also helps to reward the employees adequately and fix a compensation package which is better than the industry.

The Tools of Human Capital Analytics ¶

The power of Analytics has been augmented by the availability of sophisticated tools like SPSS, SAS, R, Python, Hana, Exalytics, Cognos, Watson, Hadoop, Pig and MapReduce. While in the good old days, we were dependant on the Calculator or Spreadsheets like Lotus 1-2-3 or Microsoft Excel, now we have tools which can analyze huge and complicated data sets with relative ease.

SPSS and SAS are statistical packages that can validate hypothesis as well as help us in detecting trends, patterns and exceptions. R is an open source software where we can write programs to understand correlations and do cause-effect analysis. SAP Hana, Oracle Exalytics, IBM Cognos and IBM Watson work on the realms of Cognitive Dissonance and Artificial Intelligence to map and analyze human behaviour. Hadoop, Pig Python and MapReduce help us to analyze Big Data and unstructured data by using parallel computing and distributive computing.

So now, we do have a mechanism and tool to forecast the possible outcomes and develop the best strategies to maximise gains from Human Resource Management and gain competitive advantage. The challenge is how to deploy the right software and technologies to achieve the goals of HR Excellence.

Organizations struggle to understand their complex existing and potential workforce and how to use each effectively. Which applicants should they recruit? Which of their hires do they wish to retain for their performance and productivity? Who amongst their internal talent do they wish to groom for career advancement? What are the most effective compensation, benefits and development options that will optimize the organization’s competitiveness in the marketplace? As we navigate today’s dynamic economy, do we need to retrench again or pursue growth? We want answers to these questions almost on a daily basis, in addition to the most obvious one: What is our headcount?

Fortunately, it is now possible for organizations to excel at answering workforce-related questions using human capital analytics (HCA). We can know whether to bolster training programs, tweak the benefits and compensation plans, hire fresh talent or downsize the talent pools. We need not turn to across-the-board cost cutting measures and reductions in staff and services. We can sift through far more data and crunch many more numbers to determine who is performing well, who will be needed, where will they be needed, with what skills, and at what cost. We can look at which individuals are achieving their performance goals and see which of them have the competencies needed for today and tomorrow to build a competitive workforce.

So we now stand at the cross-roads where we need to decide whether we are ready to adopt Human Capital Analytics (HCA) to make our HR Operations more effective in delivering the organization goals or stick to traditional methods and fight everyday battles with a disgruntled workforce. The answer is quite obvious and many organizations have already started their journey towards analytics driven HR functionality.

The Evolution of Human Capital Analytics ¶

During the Industrial Economy, the focus was on increasing productivity by mechanization of work processes. A machine could actually do the work of hundreds of workers and hence the dependence of human labour came down while productivity went up. The focus was on developing an efficient Assembly Line Manufacturing System (Henry Ford), Just-In-Time Lean Manufacturing System (Toyota) and a seamless Supply Chain System and an efficient Logistic System based on Six Sigma quality standards (General Electric). We saw software packages like CAM (Computer-Aided-Manufacturing) and ERP (Enterprise Resource Planning) gain in prominence.

Then Internet started becoming pervasive in the 1990s. The power of World Wide Web (WWW) helped companies reach out to the customer through technological devices like Desktop, Laptop, Tablets and Mobile Phones. The battle was to understand the digital footprints left by the customer in Internet; mapping and analyzing customer buying behaviour and customizing the offerings as per the needs of his or her. E-Commerce Companies like Amazon, Flipkart, Snapdeal, ShopClues and Paytm deployed softwares and tools like Search Engine Optimization, Market Basket Analysis and Recommendation Engines to grab the attention, conduct search engine optimization (SEO), draw traffic towards their websites and convert the enquiries into sales.

Human Resource, on the other hand, was heavily dependent on qualitative perceptions. It did not matter how well you performed, it mattered how close you are to the boss and how he or she perceives your importance in the organization. But with companies now becoming large and professional in their approach, the data on different metrics like hiring cost, training cost, retention cost, replacement cost and revenue per employee is being sought in every strategy meetings.

With data and information on competencies and of skills needed for the future, along with performance metrics, organizations can thoughtfully manage their workforce with targeted training, development and retention programs, see the value this support delivers, and even make predictions on future performance or retention. Workforce Analytics enables not only a view of the workforce today but offers true insights that can drive talent-related decisions and actions, resulting in improved performance in the future.

The benefits of deploying Human Capital Analytics ¶

Human Capital Analytics (HCA) can be effectively used to optimize the workforce; acquire, develop, and pay the workforce and also gain insights from available information about current processes, and initiate intervention wherever required. Organizations can use analytics to dig into the issues surrounding each process, using an analytical workflow to answer questions about each area, to gain insights from available information, and then to take action

An analytical workflow would guide the HR Personnel to assess the current headcount level, turnover trends, and projected turnover so that workforce capacity can be forecasted. The analyst can factor in workforce compensation and develop forward looking scenario-based workforce plans, varying the workforce cost structure to determine the best future scenario.

To meet the business objective of an efficient, cost-effective, and scalable recruiting process, recruiting specialists can see into the recruiting pipeline to help develop a recruitment plan. Starting from a high-level metric of new hires, an analytical workflow can guide them to drill down to see the best recruiting sources and candidate pipeline for specific jobs, along with such metrics as average time and cost to hire, to determine the best candidate source. They can perform competitive offer analysis to support a hiring decision that balances between acquiring the new hire, while not alienating and disengaging current talent in similar positions.

To meet the business objectives of developing workforce capabilities while increasing workforce engagement, a learning strategist can assess the organizational skills and experience levels and organizational strengths and weaknesses. Starting with an organizational skill map, the strategist can assess the effectiveness of learning programs, development plans, and employee potentials to help employees understand the development and career opportunities available to them to optimize the overall skill portfolio.

To ensure engagement, the strategist can also determine the top performers and identify which development activities helped them reach that level then use that information to develop a top performer profile. The development group can use that performer profile to make recommendations for new hire training that builds a new set of top performers.

This workforce today is changing. It’s more digital, more global, diverse, automation-savvy, and social media-proficient. So Human Capital Analytics (HCA) is not a choice but a compulsive tool that every organization needs to adopt to attract the best of talent, offer them the best of compensation and work environment, measure their performance, reward them adequately, retain them and get the best output from them. It should be a top priority for business houses to train their HR Department Employees with tools of Human Capital Analytics so that they can leverage the power of technology to create Super Performers.

Bibliography ¶

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(The Author is a Professor of Business Analytics and Digital Marketing at ICFAI University Tripura. He did his B.E. in Mechanical Engineering from the erstwhile Tripura Engineering College in 1994. He resides in Agartala, Tripura and is a proud member of NIT Alumni Association. You can reach out to him at 91-8427288699 (Call), 91-7351256699 (WhatsApp), @jcmech72(Twitter) and [email protected] (Email)