Harnessing the power of HR analytics
| Published date | 01 March 2005 |
| DOI | https://doi.org/10.1108/14754390580000607 |
| Date | 01 March 2005 |
| Pages | 28-31 |
| Author | Alec Levenson |
| Subject Matter | HR & organizational behaviour |
HR ANALYTICS IS AN emerging
discipline that can help enable HR to fulfill
the promise of becoming a true strategic
partner. Though there has been a
proliferation of HR metrics and scorecards in recent
years, HR needs the power of analytics to differentiate
which measures matter. HR analytics includes statistics,
research design, identifying meaningful questions,
using appropriate data to answer the questions,
applying scientific standards to evaluate the results, and
translating the results into language that is meaningful
for the business.
While the professional discipline of HR analytics is
relatively new, the analyses themselves are not,
consisting of behavioral modeling, predictive modeling,
impact analysis, cost-benefit analysis, and ROI. The
challenge for HR is understanding when and how to
apply each type of analysis – and when greater
analytical sophistication can be counterproductive.
This article discusses the insights that can be learned
from each type of analysis and the need for HR to
build the capability internally to move beyond
scorecards and dashboards to analytics that improve
organizational effectiveness. The case is made for
building deep analytic capabilities as a center of
expertise in HR and for building a solid foundation of
analytic capabilities among the HR leadership team,
generalists, and functional experts.
ROI analysis: too time consuming – and too simplistic
Being asked to show the ROI of a program or change
effort is the bane of HR’s existence. Most HR
professionals aren’t schooled in the mechanics of ROI,
and so often feel incapable of challenging the ROI
mandate. There are two good reasons, though, why
ROI is not and should not be used universally: ROI
oversimplifies complex processes, and the time and
resources needed to calculate it may be excessive.
ROI is overly simplistic because it collapses all costs
and benefits into a single number – the rate of return –
equal to the ratio of the monetary value of the benefits
over the monetary value of the costs. Its appeal is that,
in theory, the rate of return provides an aide to
decision-making because it can be used to evaluate very
different projects using the same metric. The reality,
however, is much different. By collapsing different costs
and benefits into one number, ROI disregards
information that may be critical for decision-making.
For example, consider the ROI for two different
product innovations:
a) an incremental innovation that is virtually assured of
preserving market share; and
b)a radical innovation that has a low probability of
generating a very large increase in market share and a
high probability of losing an incremental amount of
market share.
H
28 Volume 4 Issue 3 March/April 2005
Harnessing
the power of
HR analytics
Why building HR’s analytic capability
can help it add bottom-line value
Analytics enable HR to make strategic contributions,but
not all analytics offer equal insights.Alec Levenson
compares the usefulness of ROI, cost-benefit, and impact
analysis. He also explains why the time is right for HR to
build an HR analytics center of expertise and create a
foundation of analytic skills across the function.
by Alec Levenson, Ph.D.
Center for Effective Organizations
Marshall School of Business,
University of Southern California
© Melcrum Publishing Ltd. 2005. For more information, go to www.melcrum.com or e-mail info@melcrum.com
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