Making Human Aspects of Business more Quantitative: Human Capital

Analytics A Primer

Aman Bhatnagar (H14073)

XLRI
(h14073@astra.xlri.ac.in)
9811645930

It is quite ironic that despite human talent being the last true competitive advantage for any firm,
human resources is an area that has lagged behind other business functions in terms of quantifying its
contribution. Human resource analytics is the new upcoming field that aims to set right this anomaly.
Human capital analytics (HCA), in the crudest of terms, involves measurement of specific HR metrics
that are then analysed to create value for an organization by culling the insight or information from
data, which can then be used to take business decisions. HR analytics could be defined as evidencebased management practice, wherein data is collected and analysed to glean insights about what is
working and what is not, in order to take more informed and better decisions.
Organizations around the world are rising to this new field of study. This article attempts to explain
the phenomenon of human capital analytics to readers. It will serve as a primer to the reader,
educating them about the basics in Human Capital and Human Resources Analytics.
Human Capital Analytics: Evolution and the Current State
The earliest reference to HCA can be traced back to 1978, when Jac Fitz-enz proposed that
contribution of human resources to bottom line could and should be measured. This was followed by
extensive work by proponents of HCA throughout the 1980s and 1990s to improve the state of HR
measurements by benchmarking and improving various HR metrics. However, the improved metrics
only provided comparative positioning of various organizations (with regards to HR metrics) rather
than any actionable business intelligence which may be of use to company in gaining a competitive
edge. Nowadays, with ready availability of data and vast advancement in software technologies has
resulted in automating of transactional aspects of HCA. Questions related to individual-level
outcomes, such as the candidates most likely to accept a job offer and the probability that any given
employee will leave, have become easily answerable. However, answering questions related to
organization-level outcomes, such as human drivers of business success, even now, remain
challenging.
Conducting HR Analytics: The Process
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A basic 6-step process for
conducting analytics across any
HR function has been presented
below.
Step 1 Determining Critical
Outcome: This involves
identifying critical areas, such as
employee productivity and
turnover, in which the company
wishes to focus.
Step 2 Creating Cross
Functional Teams: This step
requires forming of cross
functional measurement expert
teams to determine data
requirements, and to conduct the
requisite statistical analyses. The
team primarily should comprise
key line-of-business leaders, HR
leadership and other senior
leadership.
Step 3 Assess Measures of Critical Outcomes: This step requires getting into details of measurement
characteristics. It includes details such as frequency of measurement, level of measurement,
organizational owner of each measure, etc.

Step 4 Conduct Objective Analysis of Key Data: This includes advanced statistical analysis of the
data to mine insights from the data
Step 5 Build the Program and Execute: This step comprises building interventions to have desired
effect. The intervention may be systemic, organization-wide, line of business or work-unit level-wide
Step 6 Measure and Adjust/Re-prioritize: The last step includes re-measuring to assess the progress
and calculate actual return-on-investment. Based on the feedback the relevant teams may redesign any
of the process parameters or the process itself.
Improving Talent Decisions through Targeted Analytics
In a large number of organizations, majority of decisions are taken based on the Gut Feeling. Also,
many organizations find it difficult to apply analytics to their business decisions, primarily because of
uncertainty in designing, applying and integrating analytics into the daily workings of the HR
function. However, in the last decade, analytics has increasingly emerged as the impetus behind datadriven decision making in HR. Businesses, in their efforts to gain efficiencies, are resorting to
scientific practices and therefore shifting from gut feeling-based decisions to data-driven decisions.
According to a survey conducted by Levenson, Lawler, Boudreau (2005), analytics is increasingly
gaining foothold in various HR functions. The top five applications indicated by various participants
suggest equal HR analytics in both transactional and transformational roles.
Top Five Usage of Analytics in HR Decision Making
Please indicate the extent to which HR
Percentage of people responding considerate
analytics is used in
extent or higher
Measuring routine HR process execution
41.3%
(Payroll, benefits, communication, etc.)
Supporting organizational change efforts
43.5%
Contributing to decisions about business
41.3%
strategy and human capital management
Measuring the cost of providing HR services?
39.1%
Assessing and improve the human capital
38.6%
strategy of the company
The challenges to using analytics in HR also lie in the fact that the statistical skills required to perform
sophisticated technical analysis do not tend to be present in HR departments in a company. However,
the scene is different in HR centres of excellence which tend to be equipped with at least the basic HR
analytical competenciesbasic data analysis and intermediate data analysis. However, even many HR
analytics groups do not possess any advanced capabilities such as multivariate analyses. This presents
significant challenges for adoption of analytics in HR.
Human Capital Analytics: The Way Forward
Despite the skill gap, the advantages that advanced analytics offer present significant prospects
increased adoption of human capital analytics. Predictive analytics and workforce planning are
gaining increased acceptance among various organizations. Further, with the increasing demand and
existing skill gap it is expected that more people will get into the industry.
Mastering the practice of analytics will require a lot of effort on the part of HR personnel. However,
the advantages presented will make the effort worthwhile. As a scientific practice that will enable its
practitioners position their companies at the intersection of more profits and more enlightened
management, human capital analytics is indeed here to stay.