As seen on VISIER.
What could be more important than realizing that the world of HR is on the edge of a dramatic shift that will literally change the entire focus of HR? Unfortunately, HR leaders are frequently so busy that most haven’t found the time to realize that “The War For The Future of HR” is already over, and “data analytics” has won!
The Business World Has Changed and HR Can’t Afford to Lag Behind
For decades, HR leaders justifiably focused on what can be best described as a “soft approach” to their role. Their traditional approach has been based on building relationships, working hard, developing programs and policies, and periodically warning managers that they “might get sued.” And that approach served HR executives well. At least, until the world of business changed forever.
For decades the world of business was dominated by established brick-and-mortar firms like General Motors, Sears, and GE. However, over the last handful of years, what it takes to dominate in business has shifted dramatically. To the point where the new dominating firms like Apple, Google, Microsoft, Amazon, and Facebook lead with the highest market cap value (across all industries) because of their speed and innovation.
This new vanguard of firms prospers not because of their physical facilities or a century of storied corporate history, but because they have increased their innovation rates, speed, and adaptiveness, almost exclusively with the use of data analytics.
Because of their rapid growth and rise to dominance, CEOs at other firms now want to adopt the analytics approach made famous by these top firms. And that means that CEOs now demand that each and every business function shift to the analytics model, with its emphasis on data, digitalization, data scientists, and predictive analytics.
This CEO expectation means that the time has come for every HR leader to realize that HR will not be exempt from this required shift, where digitalization and analytics permeate everything that we do.
Human Capital is Now the #1 Business Challenge
More innovative, strategic HR is essential now more than ever.
A 2016 survey of CEOs by the prestigious Conference Board revealed that the #1 business challenge facing corporations (for the second year in a row) is how we manage our Human Capital. Innovation and digitalization were ranked #4, and customer relationships and operational excellence were also in the top 5. This means that for the first time in recent memory the top challenges facing CEOs all require excellence in people management.[Recommended Read: How To Reduce Employee Turnover with Workforce Analytics]
Unfortunately, in many cases, it does not appear that HR is up to this exciting but formidable challenge. This is because other executive surveys have ranked HR as “the least strategic function” (DDI) and the function with the lowest contribution to “business outcomes” (KPMG). And after you realize that HR was also ranked dead last among all business functions in “analytics usage” (AMA), it’s easy to understand why HR needs to change dramatically and without delay. The name I use for this new approach is “Data-driven digital HR”.
Accelerate the Transition by Learning from Other Existing Data-driven Functions
Fortunately, it’s much easier for us to make this shift to a data-driven digital HR approach because every other major business function has already successfully made that transition.
Finance, supply chain, 6 sigma quality, CRM, production, and marketing have long ago shifted to this data-based decision model. And fortunately, in my experience, I have found that each of these other business functions is more than willing to help HR with their transition. Their willingness to help is increased because the success of each of these other business functions has at least in part been limited by HR’s current “mostly intuitive approach,” which has struggled to meet the critical recruiting, leader development, and retention needs within each of these functions.
I have also found that the CFOs office — the long-established king of business impact metrics — is more than willing to aid HR in learning another critical analytics task. Which is how to “convert” each of the many different HR results and outputs into their “dollars of impacts on corporate revenue” and on other strategic business goals.
Remember, successfully “earning a seat at the table” has little value if all you have to offer at the table are anecdotes and opinions!
What Does A Modern Data-driven Digital HR Function Look Like?
The first component of “the future of HR” is to become 100% digital and paperless.
Becoming digital means that all information and data is electronic so that it becomes “data” that can be transmitted electronically to the cloud. And while it is stored on the cloud, all of this information and data can be accessed by anyone, from anywhere, 24/7, using any technology device (i.e. the mobile phone, a tablet, a TV or any brand of computer).
Becoming digital also means that everything is interconnected, which allows all employees, systems, machines, processes, and databases to freely exchange information and “talk to each other.” And because of this digital interconnectivity, HR can be allowed to have easy access to all business data from other functions (e.g. productivity, problems, and goals) and other business functions can utilize HR data to improve people management within their function.[Recommended Read: Using HR Analytics for Workforce Cost Management [Case Study]]
Being “data-driven” means that you make decisions using data. In order to provide data for those decisions, digitalized data covering the actions, the problems, and the outputs of every HR process is continually collected and stored. And with access to data that covers almost everything, HR leaders can then utilize it to improve the speed and the quality of each of its major program and employee decisions. And one important final feature is that HR leaders now have additional decision support tools (including algorithms, predictive analytics, root cause analysis, and even artificial intelligence) to improve their human decision-making.
Problems and Changes Must Be Made In Order to Make the Transition
It’s important to understand that before HR can successfully make the transition to the data-driven digital model, it needs to drop its two-decade long love affair with 20th-century historical metrics. I have concluded that across most firms, HR has universally failed with its current metrics approach because of three basic flaws.
The first flaw has been that HR metrics have mostly been hoarded within HR when they really need to be widely distributed and instantly accessible on every manager’s mobile phone.
Next, the current approach has been flawed because we have utilized only “backward-looking metrics” when managers instead need to know about what’s happening “today” (with real-time metrics) and what will likely happen in the future (with predictive metrics).
The third flaw is that current HR metrics are primarily tactical and focused on reporting costs and efficiency when they should be designed for operational manager decision-making. Effective “decision metrics” include the all-important trend lines, the probability of future occurrences, the cost of a delayed decision and the recommended actions for preventing or solving each of the upcoming major problems.
What Strategic HR Metrics Are Needed for Executive Decision-making?
I have found that the types of strategic metrics that must be reported to executives are the ones that reveal HR’s impact on strategic business goals.
The single most important metric area that HR strategic leaders need to track covers collecting and reporting the impact of HR actions on corporate revenue. Proving that your actions directly and significantly improve revenue enables HR leaders to continually update a compelling business case for increased HR funding. The remaining critical strategic HR metrics should be:
- Workforce productivity (i.e. the average yearly revenue per employee number)
- Rates of collaborations/innovation
- The improvement in the on-the-job performance of new hires (i.e. Quality of hire)
- The dollar impacts resulting from the effective retention of key employees
- The percent of your managers that report that a majority of their employees remain on the leading edge of knowledge
- The availability of qualified replacement leaders
- The quantified strength of the firm’s external employer brand, which allows a firm to continually attract the very best talent to your firm
I find this new data-driven digital approach to HR to be both challenging and extremely exciting at the same time. And if you’re wondering if it’s difficult for HR leaders and professionals to shift away from their long reliance on relationships and intuition, the answer is yes, of course, it is.
However, once they make the transition to the data-driven digital model, the result is a much more strategic, more indispensable, more credible, and a higher impact HR.
I can also happily reveal the one hidden secret that few in HR realize, which is that HR professionals and leaders don’t actually have to become statistical or math experts in order for HR to make this transition. That is because, under this new approach, you hire data scientists and business analysts and use analytics technology to collect, run and analyze the data for you. That means that HR’s role is focused on presenting the recommended decisions to managers and then, influencing them to the point where they stop using emotion, intuition, and their gut — and instead, learn to rely on your data, your information, and HR’s recommendations when they make their most important people management decisions.