This Article Is Authored By MSI Global Talent Solutions]
How many times has an HR professional heard “No” from a CFO when requesting to invest in staff, training, or programs? In fact, Finance tends to say ‘No’ to most HR requests for spend or investment. Yet, ask most CEO’s a simple question: what is their greatest asset? The answer is simple: their talent. And investing in their talent is a strategic requirement. CFOs are not trying to make it harder; they just want HR to think like a business, using numbers, costs, and benefits, and develop a valid ROI strategy. Sounds easy? The reality is talent is difficult to measure.
Look at any company’s website – talent is their most valuable asset and key to their business and success. Still, most HR leaders struggle to represent HR as a business to a CFO and CEO. This is because talent is difficult to measure. If HR cannot use meaningful metrics to measure workforce impact, Finance will continue to look at talent as a cost to be minimized, not as an investment. There needs to be a balance: the value/cost ratio. And if this cannot be achieved, a CFO’s answer to HR’s request for investment will remain a resounding ‘No.”
Changing the Mindset
How can HR use the power of facts and data to influence decision-making and strategy? How can HR learn to speak business metrics and numbers that show the impact of talent decisions on business results? HR must change its own mindset to be a business partner and ask business questions using metrics and analytics geared to Finance and CEO mindsets. Determining the appropriate links between business results and workforce management is critical to making meaningful advancements in achieving HR goals. Example questions:
Do we know we have the right size and cost of the workforce? How do we know it is accurate for our company?
What is our workforce productivity? Can we measure how it is improving? What factors are helping/not supporting improvements?
How do we know we are hiring, retaining, and promoting our best talent?
Do we have the right leadership pipeline?
Being able to talk one-on-one with Finance and line management makes the difference in changing the relationship, structure, and HR’s value to the organization.
Metrics vs. Analytics
While two different concepts in principle, the ability to use HR metrics and HR analytics have become a mandatory standard to determine business decisions for all companies. Understanding their differences and using them to your competitive advantage will create the ability to operate strategically.
Metrics
Metrics are hard data and are based on operational measures. They analyze efficiency, performance, and the impact of practices or changes. For example, if you examine the amount of turnover in a particular department and calculate it as a percentage based on that area’s total staff count, that would be a metric.
Think of metrics as what is happening or has happened, defined by an objective, such as having a particular retention rate or increasing production by a specific percentage that represents a rigid target.
Analytics
There are four levels of HR Analytics:
1. Descriptive Analytics - WHAT
The most basic level of analytics. Typically, a dashboard to build reports and present what happened in the past.
2. Diagnostic Analytics - WHY
Gets to the “why.” Diagnostic analytics move from observation to the “what” that is making it happen. Ask questions about the data and tie those questions back to your objectives and business imperatives.
3. Predictive Analytics - PREDICTION
Allows companies or departments to predict different decisions, evaluate them, find areas of weakness, make more predictions—and so forth. Companies or departments should review how the first three levels of analytics work together. This level of analytics requires technology, including algorithms, AI, data science, and statistics. Companies are now able to see how their data and analytical strategies come to fruition. While most companies find it challenging to get to this level of analytics, it does bring the most benefit to them.
4. Prescriptive Analytics – NEXT STEPS
Highly advanced level and the most powerful of analytics. It answers the biggest question, ‘what should be done.’ This is when the data itself prescribes what should be done. More easily put, this is where the data prescribes what should be done. Prescriptive analytics is the best use of analytics and the strongest investment in data a company can have. It will advise a company on what next steps it should be taking and why.
Analytics has the capability to identify patterns that can alter initial thinking, leading to better decisions. They look beyond metrics to find connections and correlations between sets of data that allow companies to draw more definitive conclusions for the future.
Business Value
Both metrics and analytics are powerful tools, as they provide insights into a company’s operations and drive decisions. Metrics can feed analytics, as it is a source of data that, when reviewed properly, can help shape future decisions and objectives.
Metrics should serve as a barometer, indicating which areas of the business are performing as planned and identifying deficiencies. They will not tell you what needs to be done to improve the areas that are struggling.
Analytics creates a path towards solutions but does not provide value without the sound data metrics can provide. As metrics help analytics, analytics offer advice about how to improve your metrics, and future metrics let you know if the results of the analytics were accurate.
Once you begin using them both, the relationship becomes symbiotic, creating a spherical process for measuring business health and the effectiveness of policies and procedures.