To report on human capital management, HR directors will need to know how to
measure it. Keith Rodgers looks at the
Given the difficulty many global organisations have in producing accurate
employee headcount figures, it is surprising that uptake of analytical software
in the profession remains relatively low. At a time when HR is under more
pressure than ever to provide strategic business intelligence about the
workforce, many practitioners still seem reluctant to adopt the kinds of tools
that can help them demonstrate people value.
It is not as if the profession has an innate opposition to workforce
metrics. HR departments have long compiled detailed statistics about their core
activities and compared them to external benchmarks – whether it is the average
amount of time taken to fill vacancies or the number of days lost per
department through sickness. But these kinds of metrics typically reflect the
effectiveness of HR processes or provide two-dimensional indicators. What’s
missing in many organisations is operational and strategic data that helps
organisations understand and then leverage the real value of their workforce.
Many HR organisations recognise there is a problem in the quality of information
they are able to supply to the rest of the business. In a survey of 86 senior
HR professionals (50 per cent of whom worked at companies with revenues in
excess of £1bn) almost a quarter of respondents admitted the level of
employee-related analysis they provided to senior executives was ‘poor’ or
‘very poor’. Another 25 per cent of respondents to the survey – Webster
Buchanan Research in association with PeopleSoft, published last autumn –
ranked the analysis they provided as merely as ‘fair’. Less than one in 10
respondents went so far as to say that the data was excellent.
There’s a big opportunity for improvement here, and it has not gone
unnoticed by the IT community. For several years now, the leading suppliers of
HR management systems (HRMS) have put significant development money into the
analytics field, both within their core HRMS modules and as external packages.
Specialist developers of business intelligence software also provide analytical
In addition, suppliers of specialist HR applications such as e-learning, are
also beginning to push their own analytical capability, providing training
managers with data on uptake of courses, completion rates and so forth.
Analytical software can now support a wide range of business intelligence
activities, whether that involves measuring key indicators such as employee
retention rates, analysing compensation strategies, or strategic planning of
future workforce requirements (see Key Components below).
These applications can shed a whole new light on traditional HR metrics.
Take employee attrition, for example, which is typically assessed in relation
to average retention levels in an organisation’s industry sector, profession or
geography. Knowing that a particular department has a 10 per cent higher
attrition rate than the industry norm isn’t instructive – what matters is to
find out why it is happening and assess the business impact.
If HR is able to assess the direct and indirect costs of recruiting a
replacement (including agency fees and management time) and the cost of lost
productivity, it has the ammunition it needs to challenge existing management
practices and tackle the underlying causes. This kind of analysis can become
very sophisticated – the loss of a senior sales account manager, for example,
can be measured in terms of the cost of missed sales opportunities and impact
on customer satisfaction.
Why, then, is uptake of these applications so low? To begin with, analytics
tends to be seen as a secondary activity within many organisations. The first
priority, especially in a tough economy, is usually to improve the efficiency
of processes, which explains why IT projects such as employee and manager
self-service are gaining so much attention. In addition, analytics projects are
perceived to be expensive – before they can carry out analysis, organisations
need to build mechanisms to collate data from a range of different systems and
manage it in a central database. It is not surprising that in the Webster
Buchanan Research survey, the two biggest barriers to adoption were identified
as budget constraints and other IT priorities.
Over time, however, these constraints are being overcome. To begin with, the
ability to collate raw data improves as a by-product of other HR IT initiatives.
The more organisations automate key HR processes such as recruitment,
performance appraisals and training management, the more data they capture
relating to workforce needs and ability. All of that can be fed into a central
database for analysis.
In addition, the growing emergence of employee portals provides a platform
for easily distributing analytical output, which helps ensure the results of
analysis actually trigger action. That’s critical to the business case:
organisations need to be sure that the information they gather actually serves
a business purpose. The emergence of customer reference sites for the more
advanced analytical applications also helps reinforce HR’s argument.
Above all, as the principles of human capital management gain increasing
acceptance at board level, HR should find it easier to demand the same kind of
tools that other departments, particularly finance, have relied upon for years.
Case study: A practical approach to HR business intelligence
Thanks in part to the budgetary
constraints that have limited levels of IT investment, the public sector is not
renowned for having the highest quality workforce data. But at Hampshire County
Council, several initiatives are under way that are designed to improve its
performance measurement and workforce planning capabilities. Taken together,
these initiatives demonstrate how process automation helps generate data for
workforce intelligence, which in turn feeds back into core HR activities.
The intelligence projects consist of several key components,
centering primarily on an initiative designed to set clear expectations about
performance and development within individual roles, which are then reinforced
through the council’s pay policy. The council has implemented a SAP HR management
system that allows it to gather standard workforce data, including statistics
about staff turnover and absenteeism.
As well as providing the means to analyse departmental metrics
in relation to overall council figures, these statistics also underpin a
strategic planning process looking forward two years.
"We’d not been able to do this across the whole
organisation," says Rita Sammons (pictured above), county personnel and
training officer. "So we now have some good quality information, and we’ll
be able to do more effective workforce planning, critical at a time of
significant change and recruitment difficulty."
In addition, the council is building a competency management
programme, outlined in Personnel Today last November (see weblink below).
Built around six core generic competencies, it was developed
from a Balanced Scorecard that Hampshire put together to identify its core
values and behaviours. Technical competencies are managed separately at a
functional level – for example, HR technical skills will be assessed on the
basis of the Chartered Institute of Personnel and Development (CIPD)
professional standards and organisational need.
These competencies, which took some six months to define, are
used as a template and customised for different roles. Combined with individual
performance targets and separate ‘accountabilities’ laid down for each
employee, they form the backbone of the council’s performance measurement
framework, which in turn will determine pay progression within a role. Over
time, as individuals are measured and rewarded on the basis of this competency
framework, the authority will be able to extract data indicating how well the
workforce is developing.
Hampshire is also in the early stages of planning ways to link
individual performance management data with learning analysis.
"Hopefully, we’ll have a situation where the outcome of
appraisals, and training and development, is done online, and training and
development needs can be automatically matched to in-house courses and other development
opportunities," says Sammons.
Key components of building a framework for better HR intelligence
Human capital analytics can be sliced
and diced from many different perspectives, and there is a lot of crossover
between the applications on the market.
Some analytical capability is contained within standard HRMS
applications, while more advanced functionality is available in separate
The key components of effective analytics include:
– A central HR database or datawarehouse: a central
repository for data that has been collected from different parts of the
company. The term ‘datawarehousing’ tends to set off alarm bells in IT
departments, given the poor track record of early projects. But HR needs to be
able to pull together data from a range of departmental applications – such as
the HR management system, payroll or training applications – in one centralised
To provide a business context to its analysis, the application
will ultimately have to extract data from other systems including finance (such
as the general ledger) and customer-facing applications (such as sales,
marketing and customer service)
– Software that analyses how well HR does its basic tasks
should provide data for traditional HR metrics such as days to hire, cost of
training and so forth. Again, it’s not the bald figures that matter to line
managers – it’s the business impact
– Key workforce indicators, including traditional HR
analytics such as absenteeism or average employee attrition rates by
department. Many vendors provide pre-packaged metrics as part of their
analytics suites that can be implemented ‘out-of-the-box’, as well as providing
links to benchmarking services
– Compensation management, including the ability to
model compensation data, using both external benchmarks and links to internal
– Skills and competency management Defining skills and
competency requirements and measuring existing employees against them is a key
element of workforce analysis, providing a platform for individual performance
management and gathering aggregate data about workforce capability
– Workforce planning Several vendors have released
applications that allow organisations to plan and model their workforce
requirements in much the same way that they carry out financial budgeting