This article was updated on July 6, 2018.
Every business would love to be able to look into the future, and increasingly, advanced talent analytics allow employers to do just that. So as finance leaders, it falls on your shoulders to allocate an appropriate amount of resources for this new technology — which means digging into the potential ROI of each option.
To get started, it's important to understand advanced talent analytics. This new piece of technology applies existing applications of big data and predictive analytics to your human resources, and is a rapidly growing field of management technology. By applying metrics to the humans that make your business tick, your executives will likely be able to make better decisions.
What Gets Measured Gets Managed
By eliminating much of the subjectivity that has been a part of management and employee evaluation, talent analytics offers these four benefits.
1. Better Hiring, Happier Employees
By comparing historical data of your most successful employees with those who have applied to your firm, the often tedious task of sorting through applications to find the best fits (both in qualifications and culture) will be automated. In the long run, this means your organization could look forward to a happier workforce with lower employee churn. However, be aware of hiring bias against protected classes.
2. Training as Needed
According to the report by The Economist Intelligence Unit (EIU) and supported by the ADP Research Institute®, Strategic Drift: How HR Plans for Change, "there are signs that traditional skills are not being replaced internally, suggesting a failure to train younger staff to replace people when they retire." Training, of course, has always been a sore spot for organizations, and it's often either too little, too late, or unnecessary. By tracking your employees' performance, your organization can be better informed about when training would help an individual succeed and be more productive, or whether it could be skipped altogether.
3. Intelligent Promotions
Just as data can tell you when an employee is struggling, it can also tell you when one is excelling. Your organization will have constant data pointing to employees who could be making a bigger difference in productivity if promoted, or even laterally repositioned. This can reduce the rate of retraining and employee terminations. In fact, according to Strategic Drift: How HR Plans for Change, the "large majority (76%) of respondents say they will do more to find internal opportunities for employees to prevent job-hopping."
4. Ability to Compare Internal Data to Market Forces
While advanced HR analytics can paint a vibrant picture of what's going on inside your business, to really make the most of this information, make sure to compare what you learn internally to what's happening outside of your organization.
It's important to note here that in order to get the best results, make sure your data is focused on objective measurements. In order to create real ROI, the temptation to record subjective measurements such as quarterly reviews and peer ratings must be resisted.
As author and founder Marcus Buckingham explained in Harvard Business Review, "We must...admit to ourselves that the systems we currently use to reveal our people only obscure them. We will have to redesign almost our entire suite of talent management practices. Many of our comfortable rituals — the year-end performance review, the nine-box grid, the consensus meeting, our use of 360's — will be forever changed."
The Race Has Begun
While all of those benefits could offer significant ROI for any business, it's still the early stages of HCM analytics. Deloitte reports only about a third of businesses today use workforce analytics. And between many talent management systems adding analytics to their capabilities, and SaaS options available "off the shelf," the number of firms that report feeling ready for people analytics rose to 32 percent in 2016, from just 24 percent in 2015.
Ask the Right Questions
When it comes to deciding if your business would see significant benefit from people analytics, take a look at your objectives. Are you in a highly competitive market, where qualified applicants are sought after and courted by multiple businesses? Do you have a high rate of employee churn? Are there a significant number of employees who feel unprepared for their tasks?
Collecting data about the people that make up your organization, and then analyzing that data can be the best thing you do for your business — or the worst thing. As with all information, it depends on what you do with it.
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