What is HR Analytics?
Updated June 18, 2021
A lot of HR professionals who want to be more data-driven in their work ask the question “what is HR analytics?” In this post, we will explain what HR analytics is, how to get started, and how it will shape businesses in the future.
What is HR analytics?
Using data in HR
How HR analytics helps Human Resources Management
How to get started with HR Analytics
How does People Analytics shape the business?
People Analytics Factsheet
What is HR analytics?
HR analytics, also referred to as people analytics, workforce analytics, or talent analytics, involves gathering together, analyzing, and reporting HR data. It enables your organization to measure the impact of a range of HR metrics on overall business performance and make decisions based on data. In other words, HR analytics is a data-driven approach toward Human Resources Management.
HR analytics is a fairly novel tool. This means it is still largely unexplored in scientific literature. The best-known scientific HR analytics definition is by Heuvel & Bondarouk. According to them, HR analytics is the systematic identification and quantification of the people drivers of business outcomes (Heuvel & Bondarouk, 2016). We discuss this further in our People Analytics Certificate Program.
In the past century, Human Resource Management has changed dramatically. It has shifted from an operational discipline towards a more strategic one. The popularity of the term Strategic Human Resource Management (SHRM) exemplifies this. The data-driven approach that characterizes HR analytics is in line with this development.
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By using people analytics you don’t have to rely on gut feeling anymore. Analytics enables HR professionals to make data-driven decisions. Furthermore, analytics helps to test the effectiveness of HR policies and different interventions.
By the way, HR analytics is similar to people analytics but there are some subtle differences in how the terms are used.
Being able to use data in decision-making has been growing in importance throughout the global pandemic. Moving towards a post-pandemic world, there are many changes happening in employment – whether it is the growing popularity of hybrid work or the increased use of automation. In this age of disruption and uncertainty, it is vital to make the correct decisions in order to navigate our new realities.
Using data in HR
Of all the departments in an organization, the Human Resource (HR) department may have the least popular reputation.
This has two reasons. First of all, the HR department is like a doctor: you’d rather never need one.
Picture your role from the other side – when you ask an employee to come by your office, it’s likely that something bad is about to happen. You may need to reprimand, put on notice, or even fire your colleague. Good news, like getting a promotion, tends to come from an employee’s direct manager. Not HR.
Secondly, many regard HR as soft. Fluffy-duddy. Old-fashioned. A lot of the work in HR is based on ‘gut feeling’. We’re doing things a certain way because we’ve always done it that way. HR doesn’t have a reputation of bringing in the big bucks or playing a numbers game like sales. HR also struggles to quantify and measure its success, as marketing and finance do.
HR data analytics changes all of this. A lot of the challenges we just described can be resolved by becoming more data-driven and savvy about HR and analytics.
Example questions include:
- How high is your annual employee turnover?
- How much of your employee turnover consists of regretted loss?
- Do you know which employees will be the most likely to leave your company within a year?
These questions can only be answered using HR data. Most HR professionals can easily answer the first question. However, answering the second question is harder.
To answer this second question, you would need to combine two different data sources: your Human Resources Information System (HRIS) and your Performance Management System.
To answer the third question, you would need even more HR data and extensively analyze it as well.
As a HR professional, you collect vast amounts of data. Unfortunately, this data often remains unused. Once you start to analyze human resource challenges by using this data, you are engaged in HR data analytics.
How HR analytics helps Human Resource Management
In the same way that analytics has revolutionized marketing, HR is being transformed by analytics too. It enables HR to:
- Make better decisions using data
- Create a business case for HR interventions
- Test the effectiveness of these interventions
- Move from an operational partner to a tactical, or even strategic partner
The majority of HR departments just record, and store employee data. This doesn’t suffice in today’s data-driven economy.
Simply keeping records is often insufficient to add any strategic value. In the words of Carly Fiorina: “The goal is to turn data into information and information into insight”. This also applies to HR.
Doing this enables HR to become more involved in decision-making on a strategic level. The graphic below shows how this works in practice.
A few examples of HR Analytics
To get started with HR analytics, you need to combine HR data from different systems. Say you want to measure the impact of employee engagement on financial performance. To measure this relationship, you need to combine your annual engagement survey with your performance data. This way you can calculate the impact of engagement on the financial performance of different stores and departments.
Key HR areas will change based on the insights gained from HR analytics. Functions like recruitment, performance management, and learning & development will change.
Imagine that you can calculate the business impact of your learning and development budget! Or imagine that you can predict which new hires will become your highest performers in two years. Or that you can predict which new hires will leave your company in the first year. Having this information will change your hiring & selection procedures and decisions.
If you want to read more about how data can change hiring practices, check out Laszlo Bock’s book ‘Work Rules’. Laszlo Bock was the senior VP of People Operations at Google. In his book, he describes how hiring practices changed at Google after they started to analyze their recruitment data.
We’ve published some practical case studies in the past that show a step-by-step approach to analytics. Three of them we recommend, are:
- Case Study 1: Key Drivers of Retail Sales Performance
- Case Study 2: Reducing Workplace Accidents Using People Analytics
- Case Study 3: How we Determined Optimal Staffing Levels
How to get started with HR analytics
Start with a straightforward question, such as “which employees have the highest potential for progression and leadership?” You can answer this question using quite simple statistics. Doing this helps to quantify the relationships between people’s abilities and organizational outcomes. In this way, analytics can help your organization track absenteeism, turnover, burnout, performance and much more.
To get off to a flying start, enrol in a professional course in HR data analytics. At AIHR, we offer our People Analytics Certificate Program. These three courses are core to this certificate:
- The HR Analytics Leader course. This course is for managers who are heading an analytics department. It teaches all the skills and tools needed to do this successfully.
- The HR Data Analyst course. This course is for HR professionals who want to learn how to work with HR data using simple tools like Excel and PowerBI.
- The Strategic HR Metrics course. Metrics are the foundation of analytics. If you think you’re not yet ready for analytics because you’re not working with the right metrics, this is the course for you.
Analytics makes HR (even more) exciting. The insights provided can lead strategic decisions and optimize day-to-day business processes.
And if you know what makes your employees tick, you can create a better work environment and identify future leaders. Imagine that you could predict which employees are most likely to leave the company. This information helps in long-term planning for succession management – it benefits strategic workforce planning. A notable example of a company doing this is Credit Suisse.
After asking the right question, you have to select the right data from your different systems. This data is then combined, cleaned, and analyzed. This analysis leads to insights.
Not all insights are equally interesting, or valuable. That’s why you need to ask questions about things your HR department can have an impact upon. For example, you can’t change the wider economic trends, such as if your country is currently in a recession. However, you do have influence over your management styles and engagement levels. Asking the right questions leads to actionable insights.
How does HR analytics shape the business?
You can imagine that HR data analytics holds enormous value for an organization. These examples are only the beginning. Indeed, analytics enables companies to measure the business impact of people policies.
By applying complex statistical analyses, HR can predict the future of the workforce. This enables managers to measure the financial impact of Human Resource practices. To read more about the tools used for these analyses, check our overview on the top HR analytics tools.
Measuring the impact of HR on bottom-line performance is the “holy grail” of HR data analytics (Lawler III, Levenson & Boudreau, 2004). This is often done by calculating a Return on Investment (ROI). It is the most powerful way for HR to increase its strategic influence.
The aforementioned examples have an impact on both the cost and the revenue side of the business.
Knowing the impact of HR policies will also help HR to become a strategic partner and get rid of its ‘soft’ image. It helps HR to align its strategy with business goals and to quantify the value it adds to the business. It takes the guess-work out of HR.
So, how do we at Analytics in HR define HR analytics? We believe it is about identifying the people-related drivers of business performance. It takes the guesswork out of employee management and is, therefore, the future of HR. Or, to put it in the words of Edwards Deming: “Without data you’re just another person with an opinion”.
People Analytics Factsheet
To wrap all the information up, we’ve created an infographic with the latest research on people analytics. It contains the major challenges that the field is facing in terms of skills, data quality, data integration, and reporting. To download the full infographic as a PDF, click the link.
HR analytics is a data-driven approach to managing people at work. HR analytics, also known as people analytics, workforce analytics, or talent analytics, revolves around analyzing people problems using data to answer critical questions about your organization. This enables better and data-driven decision-making.
Common data sources include internal data like demographic employee data, payroll data, social network data, performance data, and engagement data. External data sources can include labor market data, population data, LinkedIn data, and much more. Any data that’s relevant for the specific project can be used.
Relevant skills for people analytics include business consulting to identify critical issues, analytical skills to run the analysis, stakeholder management to bring everyone together and enable the people analytics project, and storytelling and visualization in order to communicate effectively with the business and share results.