Most organizations are capturing thousands of pieces of data about their employees on a daily basis. As such, it can be hard to focus on what data really matters. It’s important for a company to define the type of data it should be looking at and the key performance indicators (KPIs) that can help it make better people decisions.
What Gets Measured, Gets Managed
In order to demonstrate added value to the organization, human resources (HR) executives need access to data that has the same level of timeliness and validity as that provided to their marketing and finance counterparts. Moreover, they need to select the human capital metrics or KPIs that are relevant to the organization and which will provide insight into the human capital contribution to the achievement of its corporate goals.
Additionally, they must be able to apply that human capital data in order to drive financial business decisions. Elements such as employee performance for instance, which has a huge impact on the bottom line, can easily guide line managers and HR professionals in making key people decisions.
Human capital analytics is the comprehensive and continuous assembly and evaluation of data in an organization that establishes who is doing what and how well. It is about linking measurement and management to not just monitor behavior, but motivate it. It is a way to gain visibility into the organization’s largest single expense—its employees—and to efficiently allocate resources on a global scale (when necessary). It is for developing a streamlined, inspired workforce working to its fullest potential, so that a company doesn’t just survive, it thrives.
5 Key Steps to Measuring Your Human Capital
For organizations to effectively analyze HR data to better manage their workforce, here are five key steps they need to take:
Step 1: Evaluate Your Existing Data
Do a thorough evaluation of all your employee and human resources data, identify where it resides, and make a strategic plan for how it will be integrated with other internal (or external) systems and applications.
Step 2: Determine the Metrics That Matter
Once your employee data has been integrated, you must determine what you will need to measure. The metrics listed below are relevant to the vast majority of organizations employing a larger number of people. These are measures that every organization should monitor on an ongoing basis.
1. Top-level organizational effectiveness measures include data regarding
• total revenues
• number of full-time equivalent (FTE) employees
• total remuneration costs (cost of paying employees)
These types of metrics can help companies measure, for example, the human capital added value or the human capital return on investment (ROI).
2. People process measures include data regarding
• absence rate
• number of days absent per employee
• FTE workdays
• turnover rate
• cost per hire
• number of hires
• cost of recruitment
• number of offers
• number of accepted offers
When analyzed together, these metrics can provide a clear diagnosis of retention success.
3. Measures of HR function performance include data such as
• total HR department costs
• total FTE HR employees
These metrics help to measure the cost and performance effectiveness of the HR function. These should never be analyzed alone, but rather in relation to the measures of organizational effectives as a whole.
For the human capital measurement process to have any value for your organization the data elements of the above metrics (and any others you choose to adopt) must be clearly defined and documented. Regardless of being drawn from various sources within the organization (and potentially from outside of the company), the data must be accurate and consistent.
Step 3: Consider the Right Technology
You need a technology strategy in order to manage your data. There are three different approaches:
1. Use the widely available analytics tools from a major ERP vendor such as SAP or Oracle. While these types of solutions in the past were somewhat limited in human capital metrics capabilities, they now have special business analytics applications designed specifically for HR.
2. Create a custom HR data warehouse and leverage business intelligence (BI) applications such as MicroStrategy or QlikTech, to name a few.
3. Consider a best-of-breed talent management vendor. These types of vendors often have a suite of HR analytics tools available (that can also be easily integrated with other legacy or ERP solutions). You will find a list of these types of vendors at the end of this article.
Step 4: Determine How You Want the Data to Be Presented
Depending on the solution you choose, your data can be presented in different ways. There are graphical reports with interactive tools as well as dynamic dashboards that allow users to manipulate and drill down into the data as needed.
Step 5: Consider How Data Changes over Time
For analytics to work in your favor, you have to be ready and willing to change and refine your HR data analytics approach to meet changing demands. What is important today may be less important six months from now. While there are key metrics that need to be measured on an ongoing basis (as shown in Step 3), there are some metrics that, at given times, may demand more of your focus (for example, as during a recession). Data analytics must always consider these changing priorities.
Technological advances have greatly reduced the cost of doing analytics, allowing even the largest corporations the opportunity to effectively monitor and manage things such as:
• employee absences
• employee turnover
• customer satisfaction
• healthcare costs
• HR process and strategies
• leadership effectiveness
• recruitment costs and effectiveness
• sales productivity
Here are just a few of the vendors in the HCM space that offer analytics capabilities.
Acquire—Aquire InSight allows organizations to assess workforce initiatives with rich talent visibility tools and clear analytics that can be presented directly to leaders to gain detailed knowledge of their success or failings.
DayForce—Dayforce ties the entire workforce management process together with its My Day process checklists. Across all modules, My Day presents current KPIs that are relevant to the performance of a manager or in a particular location.
HR Acuity—HR Acuity strives to provide its clients with the tools, resources, and expertise they need to manage and resolve matters of employee relations in a proactive, fair, and consistent manner.
Peoplefluent—Peoplefluent Analytics and Reporting delivers a solution for comprehensive BI and analytics across all labor types—salaried, hourly, permanent, and contingent.
PivotLink—PivotLink helps companies uncover key insights into its people. PivotLink can be used to analyze Workday.com data and gain instant analytical insight and rich operational reports that are otherwise hard to create.
Retensa—HRMetricsPro is built to capture a business's direct costs of turnover, such as separation costs, the cost and savings from unfilled jobs, replacement costs, and new employee training costs.
SuccessFactors—SuccessFactors Workforce Analytics provides companies with the information to create segmented action plans and workforce initiatives that drive greater business success.
Taleo—Taleo’s talent reporting and analytics software provides executives, line managers, and HR teams with the talent intelligence they need to optimize the workforce and understand the business impact of talent management initiatives.
WorkForce Software—EmpCenter Analytics, an integrated part of the EmpCenter workforce management suite, harnesses labor data from EmpCenter along with other critical business metrics to help employers fine-tune workforce management activities and improve organizational results.
Workscape—Workscape’s on-demand reporting and analytics capabilities are designed to enable managers and HR administrators to translate raw data into actionable information.
The Bottom Line
With the right tools and goal in mind, analytics provide the specific, fact-based insights for improving the return on your human capital investment.