Tools you can count on
To report on human capital management, HR directors will need to know how to measure it. Keith Rodgers looks at the options.
Given the difficulty many global organisations have in producing accurate employee headcount figures, it is surprising that uptake of analytical software in the profession remains relatively low. At a time when HR is under more pressure than ever to provide strategic business intelligence about the workforce, many practitioners still seem reluctant to adopt the kinds of tools that can help them demonstrate people value.
It is not as if the profession has an innate opposition to workforce metrics. HR departments have long compiled detailed statistics about their core activities and compared them to external benchmarks - whether it is the average amount of time taken to fill vacancies or the number of days lost per department through sickness. But these kinds of metrics typically reflect the effectiveness of HR processes or provide two-dimensional indicators. What's missing in many organisations is operational and strategic data that helps organisations understand and then leverage the real value of their workforce.
Many HR organisations recognise there is a problem in the quality of information they are able to supply to the rest of the business. In a survey of 86 senior HR professionals (50 per cent of whom worked at companies with revenues in excess of £1bn) almost a quarter of respondents admitted the level of employee-related analysis they provided to senior executives was 'poor' or 'very poor'. Another 25 per cent of respondents to the survey - Webster Buchanan Research in association with PeopleSoft, published last autumn - ranked the analysis they provided as merely as 'fair'. Less than one in 10 respondents went so far as to say that the data were excellent.
There's a big opportunity for improvement here, and it has not gone unnoticed by the IT community. For several years now, the leading suppliers of HR management systems (HRMS) have put significant development money into the analytics field, both within their core HRMS modules and as external packages. Specialist developers of business intelligence software also provide analytical software.
In addition, suppliers of specialist HR applications such as e-learning, are also beginning to push their own analytical capability, providing training managers with data on uptake of courses, completion rates and so forth.
Analytical software can now support a wide range of business intelligence activities, whether that involves measuring key indicators such as employee retention rates, analysing compensation strategies, or strategic planning of future workforce requirements.
These applications can shed a whole new light on traditional HR metrics. Take employee attrition, for example, which is typically assessed in relation to average retention levels in an organisation's industry sector, profession or geography. Knowing that a particular department has a 10 per cent higher attrition rate than the industry norm isn't instructive - what matters is to find out why it is happening and assess the business impact.
If HR is able to assess the direct and indirect costs of recruiting a replacement (including agency fees and management time) and the cost of lost productivity, it has the ammunition it needs to challenge existing management practices and tackle the underlying causes. This kind of analysis can become very sophisticated - the loss of a senior sales account manager, for example, can be measured in terms of the cost of missed sales opportunities and impact on customer satisfaction.
Why, then, is uptake of these applications so low? To begin with, analytics tends to be seen as a secondary activity within many organisations. The first priority, especially in a tough economy, is usually to improve the efficiency of processes, which explains why IT projects such as employee and manager self-service are gaining so much attention. In addition, analytics projects are perceived to be expensive - before they can carry out analysis, organisations need to build mechanisms to collate data from a range of different systems and manage it in a central database. It is not surprising that in the Webster Buchanan Research survey, the two biggest barriers to adoption were identified as budget constraints and other IT priorities.
Over time, however, these constraints are being overcome. To begin with, the ability to collate raw data improves as a by-product of other HR IT initiatives. The more organisations automate key HR processes such as recruitment, performance appraisals and training management, the more data they capture relating to workforce needs and ability. All of that can be fed into a central database for analysis.
In addition, the growing emergence of employee portals provides a platform for easily distributing analytical output, which helps ensure the results of analysis actually trigger action. That's critical to the business case: organisations need to be sure that the information they gather actually serves a business purpose. The emergence of customer reference sites for the more advanced analytical applications also helps reinforce HR's argument.
Above all, as the principles of human capital management gain increasing acceptance at board level, HR should find it easier to demand the same kind of tools that other departments, particularly finance, have relied upon for years.
Case study: A practical approach to HR business intelligence
Key components of building a framework for better HR intelligence
