Everything You Need to Know About People Analytics
Today’s HR leaders are increasingly savvy and sophisticated when it comes to influencing their Executive peers. Their secret? They start with a pervasive belief that employees are the key driver of value for their organization. Then they define a clear business case for why their programs and initiatives are superbly impactful.
It sounds easy, and the best HR execs make it look easy too.
In order to get organizational leaders to buy-in to the employee-as-a-driver proposition you must have a clear understanding of the metrics that truly capture organizational performance. You must also be able to show the linkage these metrics have to the HR metrics that are under our purview as practitioners and (perhaps most importantly) to design and execute programs that impact all areas of the business.
Thanks to a dramatic evolution in the way HR strategists consume and utilize data, the HR function is rapidly proving itself to be a profit center with access to sophisticated capabilities and tools. Things like continuous listening programs, data analysis tools, and research-based workforce planning solutions add flexibility and rigor to the new value proposition that the Human Resources function now brings.
So what does this have to do with CHROs? CHROs used to be accountable for a roadmap of programs aimed at cost cutting via retention, or cost per hire; or sometimes even worse: a once a year employee satisfaction score.
But, with greater executive power has come greater accountability. Now the best CHRO’s come armed with People Analytics knowledge and data-driven decisions that have a ripple impact on the entire business. They are able to bring greater clarity and consistency to those high performing HR operators, and thus easily gain approval for their initiatives and programs. To be able to impact HR policy, you need to understand programs on this level.
The new generation of practitioners and leaders understand the key categories of organizational data, how People Analytics fits within the overall operational data strategy, and most importantly, the workplace strategies that actively influence the overall performance of their company.
In order to use People Analytics to support your business, you must look at four different types of data across the organization:
- Organizational Performance Metrics
- Workplace Monitoring Metrics
- Key Customer Metrics
- Voice of the Employee Data
Each of these data elements will inform and influence different areas of the organization, but when analyzed together the will allow you to make strong and accurate decisions.
Organizational Performance Metrics
At the top level are metrics that employee actions influence; Organizational Performance Metrics.
Historically, HR departments would attempt to justify investments, programs and strategies by recording and tracking impact on retention. They would use abstract “cost of replacement” calculations based on outside research to show how many millions of dollars a 5% increase in employee engagement or participation in leadership development program would save through more retained employees. Essentially, trying to indirectly show correlation to profitability.
Many newcomers to the workplace strategy industry still rely on retention research to market and sell their tools, focusing on likelihood to leave in the next 6 months and providing things like smart alerts for retention issues. Both of these measures are fine, but they are truly the “basics” when it comes to HR metrics.
It is no longer necessary to indirectly relate to key business metrics. Rapid data gathering techniques and data analytics platforms like Qualtrics allow high performing Human Resource operators to show where there are direct correlations between their actions and the overall performance of the business.
Building an effective business case with a clear return on investment for current and future workforce planning and strategy initiatives is the secret for convincing your executive team to do anything.
The key Organizational Performance Metrics that today’s sophisticated People Analytics teams aim to impact are below:
- Revenue per employee – Revenue divided by the number of employees in the organization. This number fluctuates based on the number of employees and the amount of money brought into the company. To measure this in a growth environment, with many new hires, identify programs that speed ramp-up and productivity. In a shrinking phase, this number will appear to increase, but try to ensure the increase is greater than the proportion of reduced hires, or there may be engagement or morale issues linked to the reduction in force.
- Operating Margin – Profit represented by % of revenue left over after all operating expenses are subtracted. One of my former managers used to say “An Engagement score is a good way to know how people act around litter in the office. High scores will pick up the trash and throw it away or recycle, medium scores walk right by, and low scorers are the ones that littered in the first place.” Basically effort and alignment with business goals. Kenexa even describes it as “The extent to which employees are motivated to contribute to organizational success, and are willing to apply discretionary effort to accomplishing tasks important to the achievement of organizational goals.” Engagement scores, average performance reviews, lifecycle survey results all tie in very closely with levels of profitability. Modern analytics tools make it easy to show these relationships.
- Earnings per Share and Total Shareholder Return – A measurement of the amount of profit or value a holder of one share of the company would receive. Earnings per Share and Total Shareholder Return are critical metrics for executives, who often are compensated in stock. This makes influencing this metric very compelling to leadership teams. However, doing so can be difficult. The best practice for this is ensuring that you are using models and platforms for your employee and talent-based programs that have clearly researched correlations to EPS and/or Total Shareholder Return.
- Return on Assets (ROA) – Return on assets is net income divided by assets. It provides an indication of how efficiently management uses the organization’s assets to generate earnings (Kenexa). The organization’s most important asset is its employees and employees are the ones who influence how assets are utilized, strategies around asset usage and the extent to which they put forth their own maximum effort. Tracking the impact programs have on this metric and projecting ROA for upcoming initiatives will make getting budgetary approval for new programs much easier.
If the above metrics seem like much higher level data than you are used to, that’s fine. Just like knowing what your customers value helps generate more revenue, knowing what your executive leaders value will help you “sell” your programs internally. Luckily, the second level of metrics are much more traditional HR metrics and these are the metrics that influence the higher level set.
Workplace Monitoring Metrics
The Workplace Monitoring Metrics listed below are the backbone of any strong People Analytics data analysis. They form the basis of what people typically call a “big data” set when merged with the other data sets to see which individual and combined elements influence the Key Organizational Metrics.
- Open hiring requisitions
- Time to fill open requisitions
- Cost per hire – Make sure to include costs from recruiters, job advertising, talent management systems and the cost of having senior leaders interview candidates, if applicable, rather than just calculating a multiple of new hire salary.
- Number of candidates per hire
- Number of interviews per hire
- Worker productivity
- Worker quality
- Absentee Rate
- Safety Incidents
- Voluntary vs. involuntary terminations – I know I said retention as a focus isn’t great. Good retention vs. blanket retention is a good metric. Are you managing out low performers on a regular basis and are your managers managing people with potential in a way that maximizes their performance? Answering these questions and affecting the outcome will definitely impact company performance.
- Average performance rating
You would be surprised how many organizations are not tracking these metrics. When you’re working on your business case to support any new initiative, identify which of these metrics you hope to impact and to what extent the impact will affect the organizational metrics. More on that later.
Key Customer Metrics
Often missed by people analytics and Human Resources teams are Key Customer Metrics. These customer-based metrics are highly connected to the actions made by your employees both directly and indirectly. Both these metrics and the Workplace Monitoring Metrics above are strongly influenced by Voice of the Employee data. Thus, when creating a combined analysis it is important to explore how changes in Voice of the Employee data influences Key Customer Metrics, Workplace Monitoring Metrics and Organizational Performance Metrics.
Typically, marketing or customer experience teams gather and track this information. Collaborating with that team to create a centralized and combined database of HR and Customer data to analyze and track the impact your team has on these metrics will further define and refine the outcomes of your work.
This enables you to further configure your work and the development of your people to deliver the most benefit.
Here are some of the most common customer metrics you’ll use:
- Customer Satisfaction/Net Promoter Score/Engagement
- Share of Wallet
- Number of products purchased
- Customer Retention
- Average Revenue per customer
- New clients/logos/growth
Voice of the Employee Data
Capturing Voice Of The Employee Data and input from managers on their performance is the final layer of our employee focused Big Data Set. If this were the marketing team, we would call this primary research. Understanding behavioral, opinion and other qualitative data about your employees will allow you to draw new conclusions and pinpoint the actions, management techniques and operational changes by uncovering which factors have the largest impact on Organizational Performance, Workplace Monitoring, and Key Customer Metrics.
- Employee Engagement Level
- Pulsing and Continuous Listening
- Lifecycle Monitoring (Surveys delivered at key employee lifecycle triggers)
- Performance Reviews/360’s
- Onboarding/Exit Interviews
- Candidate Experience surveys
- Development Program Evaluations
- Assessment Results
The thrust of the previous sections has been identifying and providing some context for what to target when creating a business case in support of your proposed future projects. However, arguably the most important part of this is what you do with all of these data points.
The answer involves a lot of math. That is great if you have a straight-forward analytics platform like Qualtrics. Start by identifying which of the topline Organizational Performance Metrics is most critical to them, then determine which of the data elements from Workplace Monitoring have been collected. Finally, work with your Marketing or Customer Experience team to get access to the Key Customer Metric data.
With Qualtrics, you can use StatsiQ to input all of the data elements you have gathered and use the correlation functionality to automatically understand the relationship between the levels of data. If you’ve previously run Voice of the Employee Programs, enter that data in as well. Use the Qualtrics EX functionality to field surveys which will provide you with data that can be used to uncover the actions and interactions about employees, managers and customers which predict the other levels of data. We call these drivers, and the results of a full driver analysis that incorporate data elements from each of the four levels of data we’ve talked about, reveals exactly which programs and initiatives will move the needle on your organization’s performance.
Armed with that information, you can write an incredibly compelling business case for how and why you want to execute any sort of initiative, project or program. Identify which metrics you hope to influence at each level and how you hope to influence them by showing the correlations (or connections) between each effort and metric. Show your executives the impact of your initiatives over time and convince them to keep investing in your work by predicting the outcomes of your efforts. Armed with that information, you can essentially convince your CHRO to do anything.