The workplace is undergoing yet another tectonic shift. After years of pandemic-induced tumult followed by a robust employee-driven talent market, the US economy is expected to enter a recession, with a concurrent rise in unemployment.
With organizations competing for consumers and corporate spending, the C-suite is now responsible for delivering the highest quality goods and services. That means ensuring a high-performance workplace has fast become the top priority.
HR will play a pivotal role in organizational success by sourcing talent, boosting retention of high performers, and facilitating holistic performance management. But increasingly, Human Resources professionals need powerful HR analytics to compete. Deloitte’s 2021 Global Human Capital Trends Survey found that 70% of respondents’ organizations had invested in HR analytics tools over the previous 12 months, and more than 50% planned to in the coming 12 months.
To drive high-performing workplaces, it’s critical for Human Resources leaders and teams to analyze HR metrics; it enables them to iterate on processes and make data-driven decisions for better workforce performance and increased HR cost savings.
Companies that wish to remain competitive must implement HR analytics tools for crucial insights on how to align People strategy with organizational strategy. But before investing in HR analytics, it’s necessary to understand what exactly it is and the organizational benefits it can bring. Below, we’ll take a closer look at everything you need to know to get started with HR analytics — and reap its benefits.
Benefits of HR Analytics
1. HR analytics enables data-driven decisions to support high-performing HR strategy.
HR analytics provides data-based insights into the workforce and workplace and enables People teams to optimize efforts, resources, and human capital for better business outcomes. More specifically, HR analytics uses various data points that make it possible to measure and track the business impact of HR activities on employee productivity and performance, employee engagement, diversity, equity, inclusion, and belonging (DEIB), workforce retention, talent acquisition, compensation, and more.
To drive high-performing workplaces, it’s critical for Human Resources leaders and teams to analyze HR metrics; it enables them to iterate on processes and make data-driven decisions for better workforce performance and increased HR cost savings.
In some organizations, HR analytics is used interchangeably with talent analytics, workforce analytics, or People analytics. In other, often larger or more mature companies, Human Resources teams divide analysis across these terms. In the latter scenario, HR analytics would relate to core Human Resources processes, like recruiting and hiring; People analytics would relate to People-centric strategy, like employee engagement; and workforce analytics would relate to workforce metrics, such as the number of marketing qualified leads (MQLs) generated per employee. For the purposes of this article, though, these terms will be used interchangeably.
2. Data analytics catalyzed the shift from HR serving an administrative function to being a strategic business unit.
Human Resources used to be little more than an administrative function. Today, People strategy is considered a key driver of workplace success. This is even more true in the wake of the pandemic, during which HR showed its true ability to lead through challenge and act as a change agent in uncertainty. Now, business and HR leaders alike have more faith in the People center of the organization than ever before.
Yet even before the pandemic, the shift from administrator to core, strategic business unit had begun, driven in part by HR software, like Human Resource Information Systems (HRIS) and Human Capital Management (HCMs) platforms, which helped make HR analytics possible.
Without these centralizing tools and platforms, HR data remains siloed across disparate spreadsheets and files. HR platforms also automate manual tasks, freeing up HR professionals’ time to focus on People strategy. And centralized data makes it possible for Human Resources teams to quantify their impact and successes.
3. HR analytics equips People teams with actionable insights.
HR analytics provides visibility into core People metrics and enables Human Resources departments to support high-performance workplaces that deliver on the business’s objectives and key results (OKRs). For HR departments, identifying patterns of employee engagement, discovering opportunities to improve workforce performance, and forecasting talent trends provide the core insights needed to help HR build a better workplace culture, improve employee performance, and, ultimately, reduce HR-related costs.
But most companies still have a long way to go. A majority of CEOs surveyed by McKinsey & Company admit that their HR “analytics” lean toward basic reporting and rather than capabilities that could create lasting business impact. Part of this challenge may lie in the tools being used.
While some HCMs come with HR analytics capabilities, these features are usually not the primary reason for purchase, and therefore companies may not fully license these capabilities. Organizations may choose to bring on an additional platform with more robust data analysis capabilities, or transition to a holistic People success platform with more specialized People analytics tools, like Lattice. Research backs up these investments: Deloitte found that high-performing companies are twice as likely to use specialized People analytics tools and software, compared to their low-performing counterparts.
Sources of Data for HR Analytics
HR data comes from a variety of places. Large datasets for HR analytics come from existing systems that support workforce and business success. For example, sources of HR data include HCMs, HRISs, learning and development platforms, customer relationship management (CRM) platforms, recruiting software, applicant tracking systems (ATS), and holistic performance management systems, among others. These sources provide objective, existing data about the general workforce and individual employees that touches on everything from age and ethnicity to sales performance and performance review ratings, for example.
Human Resources teams should also collect and consider subjective, employee-reported data. This data comes from engagement surveys, pulse surveys, candidate interviews, exit interviews, and open-ended comments from employee feedback surveys.
Both objective and subjective data sources are essential. Taken together, they allow People teams to generate more specific insights. For example, the objective data on employee turnover speaks to how many people are leaving the company, and whether those departures are voluntary or involuntary. Subjective data on turnover could come from an exit interview, and provides greater context about why an employee is leaving — critical information for the company if they want to stem the flow of departing employees.
Collecting data from myriad sources along the employee lifecycle provides a more comprehensive and realistic view of workforce performance, and allows HR to better craft and adjust People strategy to help the organization meet and exceed its goals.
6 Key HR Analytics Metrics and KPIs to Track
Powerful analytics platforms provide the ability to track almost limitless People-related metrics. While this allows Human Resources professionals to creatively view and filter data for unique insights, there are some enduring metrics and KPIs that HR should prioritize. These include:
1. Employee Engagement Analytics
Employee engagement is not a single key performance indicator (KPI), but rather an analysis of several. The top most commonly measured employee engagement metrics are net promoter score (NPS), employee net promoter score (eNPS), and employee sentiment, but organizations with more sophisticated data analytics capabilities are likely to consider other metrics, like performance and absenteeism, too.
Employee engagement KPIs can offer information like how productive an employee is likely to be and how likely they are to stay in their role. In general, these metrics indicate how dedicated the workforce is to their work, and how attached employees are to their jobs.
NPS and eNPS are classic engagement metrics that Human Resources can easily obtain by surveying employees. Employee sentiment — how employees feel about the organization and how it’s run — can be trickier to measure. AI-powered insights from platforms like Lattice use algorithms to continuously scan comments and intelligently parse open-ended questions on surveys to track employee sentiment over time.
2. Diversity, Equity, Inclusion, & Belonging (DEIB) KPIs
Diversity, equity, inclusion, and belonging metrics provide insights that help organizations remain accountable to their DEIB goals. DEIB metrics should track the diversity of candidates, interviews, hires, promotions, and pay increases by demographics like gender, age, race/ethnicity, and sexual orientation. Voluntary turnover by demographic group is also an important DEIB metric to keep track of.
HR teams will want the ability to view the demographic breakdown of each department, as well as the recruiting numbers for each department. It’s also important to be able to view the diversity breakdown of leadership positions and the C-suite, too.
3. Absenteeism Data
The absenteeism rate reflects unplanned absences over a given period of time. Sick days contribute to the absenteeism rate, but manager-approved planned vacations or holidays do not.
Absenteeism is directly linked to employee engagement, and a higher absenteeism rate can provide information that someone may be a flight risk. It also provides insight into employee mental wellness, as employees facing mental health challenges are likely to have higher rates of absenteeism.
4. Human Capital Risk
Human capital risk is not a single metric but an analysis of several. Human capital risk draws together data to provide insight on talent-related liabilities, like flight risks, potential labor or skills shortages, or leadership pipeline shortages.
It also encompasses basic metrics like employee turnover rate, attrition rate, and leading termination reason. Companies should track both objective and subject metrics related to turnover and attrition rates and their key drivers. The number of people leaving says a lot about your organization; why they’re leaving says even more. People teams should analyze data gleaned from exit interviews alongside turnover rate when reviewing talent initiatives and developing strategy.
5. Cost Per Hire
The cost per hire is the average cost of hiring a new employee. Cost per hire is a metric that relays the cost effectiveness of your hiring process and the performance of your recruiting team. It’s used to analyze hiring expenses of the company, and allows an organization to benchmark its hiring expenses against those of other companies.
6. Offer Acceptance Rate (OAR)
The OAR reflects the quality of your hiring process and the competitiveness of your compensation and benefits packages. The number of candidates who are presumably interested in employment with the company when extended an offer but later decline can tell you a lot.
The OAR gives Human Resources teams a starting point for investigating why candidates turned down an offer. Perhaps the candidate received a better offer from a competitor, or maybe they experienced a breakdown in communication once the offer was made. OAR is a must-track HR metric for any competitive employer.
Predictive Analytics Help HR Better Plan for the Future
When it comes to maximizing the impact of the Human Resources department and the central benefits of HR analytics, predictive capabilities are key. The best People success platforms on the market are built with these capabilities at their core.
Predictive methods rely on algorithms that use large amounts of data to forecast patterns of behavior and future likelihoods. For instance, predictive analytics can alert HR teams to employees who are flight risks at high risk of leaving the company.
To do so, the system would use data like the current and historical metrics related to employee engagement, performance, absenteeism, and more to judge the likelihood that an employee is considering departing the company. Using predictive analytics, HR can then take preventative actions to mitigate the loss of time and money that results when an employee leaves. HR may be able to encourage the employee to stay, for instance, or begin the search for a replacement in advance.
Predictive analytics can be used for other matters related to future talent needs, like anticipating skills shortages or managing succession planning. Human Resources teams can also leverage these AI-powered analytics to identify top candidates for an open role, reduce bias in the recruiting and hiring process, and forecast future performance, among other use cases.
Predictive analytics help HR teams make data-driven decisions related to future developments, like talent shortages or DEIB goals, and “enable People analytics teams to analyze and explore practical options for management action,” according to an article by McKinsey & Company. As HR teams continue to work toward growing and supporting high-performance workplaces, predictive analytics are a vital tool.
HR Analytics Platforms Must Provide Visibility at a Glance
Since Human Resources data comes from a number of sources, People teams benefit from HR analytics tools that pull data into a single place to visualize trends and make it easy to interpret and work with.
While many everyday workplace tools, including spreadsheets, can technically be considered HR analytics tools, most of these create the additional work of having to visualize the data before it can be interpreted; the numbers alone don’t create a story with actionable takeaways. But People teams need a simple way to visualize and interact with the current data, and predictive analytics to glean insights and take action.
People success platforms with visualization dashboards, like Lattice, do this best. They give People teams the flexibility to pull and centralize data, run reports, and generate clear and intuitive charts and graphs across a host of key HR metrics.
Dashboards also enable Human Resources professionals to easily share insights and convey data across all levels of the organizations, from the C-suite to line managers, as well as with their HR colleagues.
While the data contains the facts, People teams need simple and intuitive ways to discern the story behind the numbers. Tech tools and platforms that provide dashboards make it easy to visualize data so Human Resources teams can interpret, communicate, and leverage data for HR strategy and initiatives with greater impact.
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Human Resources teams can make better decisions with better information — that’s what the benefit of People analytics boils down to. With better insights — data-driven insights — HR professionals have more accurate and realistic information on which to base People strategy, allocate resources, and use human capital to drive organizational success.
Read more about how HR technology and analytics drive organizational success in Lattice’s whitepaper Navigating the Employee-First Era of HR Technology.
