Table 1.1 Examples of Traditional, Current, and Future HR Requests from Managers
“Industries are being disrupted. Talent is more mobile. All organizations need to understand the workforce better, and how it is executing the business strategy. And workforce analytics is at the heart of how to do this.”
—Mark Huselid
Distinguished Professor of Workforce Analytics, Northeastern University
In a globally connected world of Big Data, complexity, and disruption, the business landscape is evolving faster than ever. Growing competition for talent coupled with shifting worker expectations and opportunities are changing the very nature of work. More data exist about people than ever before, along with more advanced technology for analysis. These developments are requiring changes of the human resources (HR) function, which needs to adopt an analytical mind-set and become more quantitative. Workforce analytics allows organizations to gain insight about people at a level never before witnessed, offering competitive advantage to improve business performance.
The reasons driving HR’s adoption of workforce analytics can be summarized in the following categories covered in this chapter:
• The need for HR to contribute to business value
• The democratization and consumerization of HR
• The evolution of work
Many organizations are already realizing the benefits of analytics. A 2014 PWC report, written by The Economist Intelligence Unit, found that 89 percent of large company executives surveyed either already were using Big Data to make decisions or planned to start doing so in the next three years. In HR specifically, in its 2016 CHRO report, IBM found that the number of chief human resources officers (CHROs) using predictive analytics to make more informed workforce decisions across HR activities had increased by approximately 40 percent over two years. The evidence of the trend is clear, as Deloitte’s Global Human Capital Trends 2017 reports: “People Analytics, a discipline that started as a small technical group that analyzed engagement and retention, has now gone mainstream.”
In the commercial world, businesses need to stay ahead of their competitors to sell more products and services and to increase revenue and profit. The general aim of businesses is to increase market share and value for their owners. In the public or voluntary sector, organizations need to increase value through efficiency and effectiveness in delivering products and services to their constituents, whether they are service recipients, taxpayers, or donors.
Whether public, voluntary, or private, all organizations need to deliver value. This requires using financial metrics and key performance indicators to monitor and improve operations. Evidence already shows the importance of workforce analytics to profitability, one key financial metric. In a 2015 KPMG report, written by the Economist Intelligence Unit, a large majority of executives (91 percent in IT and technology, 81 percent in biotechnology, and 70 percent in financial services and healthcare) indicated that an increase in the use of data-driven insights in their HR function would affect profitability over the subsequent three-year period.
As organizations seek to improve performance, the onus is on HR to build value. The best way to do this is through an analytical approach. This is not necessarily where HR has seen itself in the past. Patrick Wright, a professor at the University of South Carolina, states: “When you hear about the work of Finance, Marketing, or Information Technology, it’s about numbers, numbers, numbers. When you hear about the work of HR, it’s about words, words, words.” We also believe, however, HR should not aim to transform itself into a purely analytical function and lose touch with the human behaviors and characteristics that also help people and businesses succeed.
For many organizations, the analytical transformation has already begun in areas familiar to HR, such as attrition and retention analytics, recruitment analytics, workforce planning, compensation optimization, and employee engagement. John Boudreau, a professor at the University of Southern California, has witnessed this: “There are some very prominent examples of analytics being used to answer important questions in HR—for example, which people will leave and how successful a candidate will be if hired. These are important questions that have been answered with analytics.”
Workforce planning is another area of HR that is ripe for analytics attention because analytically driven techniques make it more strategic and sophisticated. Salvador Malo, Head of Global Workforce Analytics, explains how this is playing out at Ericsson: “Optimizing the workforce requires a two-pronged approach: First, understand the business requirements and translate these into needs for the future; second, get to know your workforce in some depth. Together these insights about the business and the people who work in it will lead to recommendations that improve workforce planning.”
Prediction of attrition and candidate success, and workforce planning are all important topics for workforce analytics attention. Even greater value is realized when workforce analytics contributes to business outcomes. An impressive body of scholarly literature1 shows that a firm’s HR practices affect performance outcomes at all levels, from individual employees, teams and units, all the way to organizations as a whole. These HR practices can improve the breadth and depth of employee knowledge and skills in organizations—for example, through learning and development or the attraction, selection, and retention processes.
“Our job as analytics experts is to ask the tough questions to enable executives to better manage their organization and perform their fiduciary duties.”
—Alec Levenson, Economist and Senior Research Scientist,
Center for Effective Organizations, University of Southern California
A multiyear project undertaken in ISS, a global facilities services organization, offers an example of how workforce analytics contributes to business outcomes. The project brought together employee engagement and customer advocacy data to link to financial outcomes. ISS concluded that when both employee engagement and customer advocacy are high, profitability is highest. The average profitability in units scoring highest on both dimensions was 7.75 percent, versus 4.52 percent in the lowest-scoring groups.
“My perspective on analytics in HR is that every other business leader I know runs their business with analytics, but there’s a black hole when it comes to HR.” This is the view of Tracy Layney, Senior Vice President and Chief Human Resources Officer (CHRO) at Shutterfly, Inc.2
She goes on to explain two general types of analytics, which she tries to keep separate:
• True workforce analytics. The approach of measuring behaviors in organizations and knowing how to knit them together to improve business performance. The approach is similar to that taken with customer behavior, but this one concerns employee behaviors.
• HR analytics. The functioning of the HR team itself—for example, analyzing key performance indicators (KPIs) such as time to hire. Such analytics are about holding the HR team accountable.
Tracy says that every CHRO should be focusing on the first point. “We should be giving more levels of data showing leading and lagging indicators about our people. We have to make it an ‘insights’ exercise, not a reporting exercise—for example, using the insights to achieve business outcomes, or to expand into new markets.”
She says it is essential to both increase the skills in HR and reset the mind-set of business executives. “We talk about increasing the skills of HR, but we have to recognize that we [HR] have also trained our leaders how to think about the people part of their business, for example—to run it in a very program-driven way (such as the annual salary cycle or talent reviews). We have to push out of those expectations, to do things quite differently.”
Tracy concludes, “This is a huge area of opportunity for the HR profession. Workforce analytics and strategy together is a really powerful combination.”
A second project, this time at global pest control firm Rentokil Initial, focused on the predictability of sales success. The project isolated the key behaviors of high-performing sales professionals and used automated assessment techniques to select future candidates based on those behaviors. Global sales rose more than 40 percent and the project had a return on investment of more than 300 percent.
These examples, described in more detail in Chapter 6, “Case Studies,” demonstrate that workforce analytics can contribute not just to improving the effectiveness of HR processes, but also to improving and predicting business outcomes such as profitability and sales.
Workers, managers, and executives are demanding more from their HR function.
• The need for more information to “run the business.” The required response to this is the democratization of HR.
• The desire for personalized services. The required response to this is the consumerization of HR.
These demands strengthen the argument for workforce analytics because analytics can help deliver insights directly to managers and also provide intelligence that enables the personalization of services to employees.
At a time when data are more readily available than ever, HR is being asked for more information, better insights, and more precise recommendations to help executives and managers run their businesses. This puts a strain on the traditional HR function that primarily dealt with the process side of recruitment, resourcing, development, and employee relations. For the last 40 years or so, HR has delivered structured programs, developed policies, and implemented best practices to allow executives and managers to manage people in a cyclical pattern—for example, through annual performance reviews, specific salary increase programs, and succession planning cycles. However, the demand has changed and new requests for information are emerging, as Table 1.1 illustrates.
Table 1.1 Examples of Traditional, Current, and Future HR Requests from Managers
For executives and managers to get timely answers to questions and make informed decisions about their people, they need information, insights, and recommendations. HR needs to respond to these requests in real time, providing information and insights to managers and executives as they need it. The workforce analytics function is at the heart of this change because HR is sharing more than just data with managers and executives—it is also giving them business insights and recommendations generated by sophisticated algorithms.
Bringing the type of customization experienced by consumers to the world of work can yield great benefits. In 2012, Amazon reported a 29 percent increase in second quarter fiscal results. A Fortune article at the time discussed how Amazon’s recommendation engine contributed much to that success by using algorithms to heavily customize the browsing experience for returning customers.
HR can learn a lot from examples like this and begin to use its data to create predictive models for the “workforce of one” (a term referring to personalized employee experiences in Accenture’s report “The Future of HR: A Radically Different Proposition”). But more than this, workers are starting to expect similar customization from their employers. Many workers would appreciate recommendations to improve their working experience. This change is referred to as the consumerization of HR, further discussed by Mark Feffer in a 2015 Society for Human Resource Management article focused on recruitment: “Today, job seekers are thought of as customers.”
Examples of workforce personalization include the following:
• Recommendation of modular courses to enhance employees’ skills
• Information on benefits relevant as a worker enters new life stages (for example, a new baby, marriage, or house purchase)
• Internal job and career moves that best meet a worker’s skills and expertise
• Opportunities to contribute to projects across the business based on an individual’s expertise and knowledge
• Provision of performance feedback in real time through manager- to-employee and peer-to-peer social feedback
Ian Bailie, Global Head, Talent Acquisition and People Planning Operations at Cisco, explains how the consumerization of HR begins with the Cisco Talent Cloud, a huge database of all workforce-related data: “The primary catalyst of the Talent Cloud was for employees to manage their own development. For example, it helps them find training that matches directly to skills, as well as potential new jobs and new assignments. It also gives them visibility of opportunities across Cisco, breaking down silos. All that is in the employees’ hands. And that gives us an overview of the entire workforce that is also really helpful in running the business.”
Mark Huselid, Distinguished Professor at Boston’s Northeastern University, is one of the world’s experts in workforce analytics.3 He sees this area as the future for the HR profession. “In my experience, the outside world is changing more quickly than the organization is changing on the inside. So there is an increased demand for talent related information.
“The arc of the analytics story is that it is both very new and very old. We’ve been playing at this for a long time. So what’s new? A confluence of factors: access to data and better, easier, faster analytics tools.” The workplace is also changing with the Internet, social media, smartphones, and work marketplaces for jobs virtually everywhere and for any skill. “Executing strategy through the workforce, and helping managers do a better job of that has gotten much more complex,” Mark says.
And so we come to analytics. “I was at Rutgers University for two decades at the School of Labor Relations,” Mark says. “I focused on HR in that program. I spent a lot of time working with executives and trying to understand from them the relative returns of HR. Analytics is just the next evolution and there’s a lot more interest now in building analytical skills.”
He continues: “There’s enormous pressure to do things faster, better, quicker, cheaper. In today’s world, there’s much more information available to employees about the quality of experience in other businesses, making talent exponentially more mobile. People won’t put up with crummy jobs—they’ll just leave.”
Mark’s message is simple: Businesses must understand their workforce better. And to do that, they must use analytics.
Workforce analytics is most relevant when we consider the way the world of work will change in the future. Although firm predictions are difficult, some trends have their foundations in today’s reality. According to the Global Consortium to Reimagine HR, Employment Alternatives, Talent, and the Enterprise (CHREATE), five fundamental forces are driving change for the future world of work:
• Social and organizational reconfiguration
• An all-inclusive global talent market
• A truly connected world
• Exponential technology change
• Human–automation collaboration
“Over the next 10 years, we will see work liberated from the idea of a job. Work will be disaggregated and re-combined in ways that better suit employers and employees.”
—John Boudreau, Professor of Management and Organization, and Research Director of the Center for Effective Organizations, University of Southern California
In a 2014 CHRO study undertaken by IBM’s Institute for Business Value, 66 percent of C-suite executives said their organizations rely on third-party providers for contingent workers, 57 percent rely on alternative workforce arrangements, and 36 percent rely on crowdsourcing. The report argues that predictive analytics will be needed to make more accurate workforce decisions as the nature of the workforce shifts.
CHREATE and the IBM CHRO study underline the importance of analytics in helping organizations succeed in this changing world, specifically in these areas:
• The speed of change will alter the nature of work:
• Work will be deconstructed and analytics will be helpful in determining the parts of the work that will remain strategic and the parts that will remain peripheral to an organization’s core mission.
• Some work will become automated by robots and other machines. Analytics will help define the best workforce that becomes a mix of robots and humans.
• Workers themselves will continue to redefine work:
• The number of independent workers will continue to increase, thanks to technological advances connecting people anywhere, anytime. Organizations will tap into this “gig economy” for experts to add value to work at the right place, right price, and right time. Workforce analytics should be used to understand what work is suitable for independent workers and for permanent employees.
• Workers’ expectations will continue to drive the need for personalized services—for example, in learning, healthcare, benefits, and so on. But in addition, new services will be needed as the gig economy intensifies—for example, the need for legal advice for intellectual property (IP) for freelancers who use their IP in multiple firms concurrently.
• The volume of data will change the nature of workforce insights:
• Wearables, sensors, nanotechnology, and other devices will provide incredible amounts of data for analysis. Some devices will become so small due to technological advances that they will almost disappear from view, a term described as “disappearables” in a Reuters article by Jeremy Wagstaff in April 2015. The decrease in size is expected to increase the personal desire for and usefulness of devices in the workplace.
• As the gig economy builds, the growing associated data will help redefine a worker’s reputation based on information about the gigs undertaken and related endorsements about the value of the work.
It’s a new world of work. Ian Bailie of Cisco summarizes this well: “It’s about understanding the skills and capabilities of the internal workforce; dealing with the new gig economy, contractors, and freelancers, and understanding their skill set; getting better at moving people around the organization; and enabling them to build careers and their own personal brands. This will become a dataset that we don’t have today.”
This is an important time for the HR profession to adapt and create momentum in the field of workforce analytics to capitalize on the changes shaping the future world of work. As Max Blumberg, founder of Blumberg Partnerships, Ltd., stresses: “You’d have to be a very brave human resources director to say you’re not taking analytics seriously.”
Workforce analytics is a discipline that is increasingly needed in organizations. This growing demand can be attributed to the following:
• The continued need for increased business value and market competitiveness
• The requirement for information and data in real time from managers and executives, to help them run their operations more efficiently and effectively
• The move toward a consumerized working environment and the provision of personalized services using workforce-related recommendation engines
• The deconstruction of traditional business models and the proliferation of the gig economy and independent workers
• The ongoing explosion of Big Data from devices such as wearables and sensors that will expand the amount of available workforce-related data
1 For pioneering work in this field, see the contributions of Mark Huselid, Distinguished Professor of Workforce Analytics, at Northeastern University.
2 In 1999, Shutterfly, Inc., began as a company that helped people print 4-by-6-inch photographs from their digital cameras. Today it is an industry leader for photo and video storage, award-winning photo books, gifts, home decor, premium cards, invitations, stationery, and much more. Shutterfly is headquartered in Redwood City, California (www.shutterflyinc.com).
3 Mark Huselid spent more than 20 years at Rutgers University and the last 2 years at Northeastern University. In addition, he has been a visiting faculty member and has taught at schools and universities around the world to help in developing the next generation of HR leaders.