HR metrics and Analytics: How both can add value
There’s a lot of confusion about the difference between HR metrics and analytics. In this article, we will explain both concepts, how they relate, and how both can add value to the practice of Human Resource Management.
Definitions of HR metrics and Analytics
HR metrics are measurements used to determine the effectiveness and efficiency of HR policies.
Metrics help compare different data points. For example, if turnover was 5% last year and is now 7.5%, it has increased by 50%. The former are data points, the latter is the metric.
Metrics don´t say anything about a cause, they just measure the difference between numbers.
HR analytics, also called people analytics, is the quantification of people drivers on business outcomes. Analytics measures why something is happening and what the impact is of what’s happening.
Consider the following example:
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- This example starts with an opinion: “I feel like a lot of people are ill this month!” This opinion, however, is a gut feeling, it’s not a fact. The person could be mistaken.
- Data helps to factualize the opinion. When we look at the data, we see that absence levels are at 12% this month. With this data we still can’t make a value judgment. We don’t know if 12% is high or low.
- To understand this, we need a norm (a.k.a. compare with a second data point). For example, when we know that the company average is 8.5%, and the national average is 4%, we know that this month is a really bad month – and that there’s a potential problem in the company! This is where the metrics come in.Another metric could be ‘cost of lost productivity due to absence’. For this, we need the following numbers:Assuming that the organization has 60,000 employees with an average annual labor cost of $45,000, the formula for this month alone is:
- Analytics helps identify causes and how it impacts the business. For example, the number of people who report flu-like symptoms has significantly increased, or the number of flu symptoms reported in the company increased at similar rates as in the country. This information helps to identify a cause.
- The final step is insight. What will we do with these numbers? First of all, cost of absence is far above the market average. It is so high that it threatens the competitive position of the company. Second, we should try to reduce the absence of employees in a flexible manner in case a new flu epidemic sweeps the land. This can be done by fighting the cause or by fighting the symptoms: sponsoring flu vaccinations or enabling flexible deployment of on-call workers.
This example shows how HR metrics and analytics relate.
Analytics tracks the effects of metrics on business performance
To properly explain the relationship between HR metrics and analytics, we’ll use the HR value chain. The value chain shows different kinds of HR metrics and how they impact business performance.
On the left, we have the so-called efficiency metrics. They show how efficient HR is in its work. Examples include cost of training, cost of hiring, number of applications, average years until promotion, et cetera.
In the middle, we have effectiveness metrics. They tell us how well HR is performing its role. Outcomes include employee retention, employee engagement, employee performance, et cetera.
The difference between efficiency and effectiveness can be described as HR input and HR output. However, the third category, the impact metrics, are the business impact of everything HR is doing. These are the results that count and that influence the (long-term) viability of the company.
Everything we do in HR needs to serve these business goals – which can differ between organizations.
Now where does analytics fit in? Analytics tracks the effectiveness of HR metrics on HR and business outcomes. It helps to answer the following example questions:
- How does learning & development investment impact sales performance for my account managers?
- Will quicker promotions help us retain our top talent?
- What can we do to retain employees and thus save money?
- How can we best improve customer satisfaction through smart people processes?
All these questions can be answered using analytics and the aforementioned HR value chain.
How to get from metrics to analytics
Now you have a basic understanding of the difference between metrics and analytics, we’ll finish with how to get from metrics to analytics.
- Start with your data: As you know now, metrics are the relations between data points. In order to start with metrics, you need to have your data right. Smart HR system design and high data quality are key components to improve before you invest into getting your metrics ready for HR reporting
- Getting the metrics right: This step sounds easier than it is. Measuring basic data is easy but keeping track of more complicated metrics, like the % of unwanted turnover, is something a lot of companies are struggling with, as it requires them to combine multiple systems (their main HRIS and their performance system in this case).
- Select the relevant KPIs: The second step is to select the HR Key Performance Indicators that matter most for your business. These KPIs should be connected to business goals. For each KPI a target score should be specified.
- Identify areas where analytics adds value: You can leverage the data and metrics to add value using analytics. This starts by identifying a business case that, when solved, would add value to the business. This means that your outcomes need to be actionable.
- Implementation of results: Once you’ve completed your first analytics project, you can implement the results in the organization. At this point, you’ve leveraged your HR data to create value for the organization and you’ve added to the organization’s strategic goals.
If you’re serious about learning more about these topics, check our courses on Strategic HR Metrics and on HR analytics. We offer a course that teaches you how to create an analytics department and manage projects and one, the HR analyst course, that teaches you how to do analytics in Excel and Power BI.