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Written by: Aon Hewitt

As leaders struggle to climb on the "big data" bandwagon, how can they be sure that they are making the most of the data available to them? The quantity of data available may make an issue seem important1, but collecting more data won't necessarily make for a better or more informed decision. Identifying the root cause, choosing data points that are relevant, and applying the right level of analysis to suit the problem are the key means to reaching the best decision with the best possible outcome for the organization.

In recent years, investment in enterprise technology has enabled organizations to make better decisions about such business processes as customer relationship management, procurement and supply chain operations. Organizations have removed excess cost, achieved greater efficiencies and higher performance through superior understanding of the origin of their operational issues.

Driving success from analytics came not just from its use, but from recognizing the specific operational issue and understanding how analytics could use the data available to facilitate objective, fact-based decision-making to realize a viable solution.

Marriott International leveraged analytics to optimize its offerings to frequent customers and to assess the probability of their defecting to a competitor, so that it could take action to retain them. Its revenue-management analytics have enabled Marriott to create a highly successful revenue opportunity model, which has increased revenues from 83% to 91%, by analyzing actual revenues as a percentage of the optimal rates that could have been charged.2

The Power of Workforce Analytics

When it comes to the workforce, organizations have not been as quick to adopt the same analytical approach. Organizations dedicate very little time – or money – to measuring the drivers or outcomes of employee capabilities.3 As organizations are challenged with doing more with less, leaders are now looking to understand how they can leverage their workforce more effectively and profitably.

Human Resources Information Systems (HRIS) and other workforce information systems have made employee data more readily available. Organizations such as Google, AT&T and others have used analytics to understand what drives higher employee engagement, productivity and retention.4 Analytics has enabled such companies to remove subjectivity from their decision-making. They no longer ask "What do we think?", instead they ask, "What do we know?"

Organizations are now able to use the existing data that underpins their workforce dynamics – the flow of talent into, through and out of an organization – to make decisions on matters such as HR policy, total rewards, employee engagement, productivity improvements and people risks.

Traditionally workforce data was reported such that it captured and reflected historical trends. While this was informative, it lacked the granularity to be exploited to great advantage. The organization's ability to make decisions on where to focus retention efforts, training, and recruitment activity were largely based on experience. Identification of future leaders and high potentials was based on opinion and past performance. By applying analytics, however, bias and ambiguity are removed. Leaders can make fact-based decisions that will improve workforce performance and productivity. By gaining perceptive insights from their data, organizations can understand the positive and negative drivers of workforce performance and change their HR practices to achieve better outcomes, such as increased retention of talent.5

How organizations turn workforce data into workforce intelligence by utilizing analytics need not be complicated. There are many levels of sophistication in HR analytics. Creating the ability to take the data currently available and turn it into actionable insight relies on five things:

  • Data – the key to analytics is both the quantity and the quality of the data available. However, organizations should not be deterred from using their data because they believe it to be of poor quality. Analysis will highlight where efforts to improve data integrity should be focused.
  • Technology – information systems need not be complex, but analytics will reach its full potential if HR systems are integrated across the organization, have ample data storage capability and are accessible to those who require it.
  • Culture – evidence-based decision making is not just best practice; it is advocated by leadership and applied by everybody.
  • Capability – good analytics requires good analysts. Identifying and hiring individuals with the unique combination of analytical, business and interpersonal skills is critical to success.
  • Objective – a clearly defined purpose will enable the right data to be used to support the right solution.

 

Getting Started

So, what to look at first? Organizational performance is unquestionably linked to the capability and engagement of employees. Sysco, a Fortune 100 global food-service company, used analytics to understand exactly why operating units with highly satisfied employees had higher revenues, lower costs, increased retention, and greater customer loyalty. They identified specific management actions that had the greatest impact on their staff; within six years, they strengthened their retention rate from 65% to 85%. Ongoing monitoring of employee satisfaction scores has enabled them to initiate improvements in a responsive manner, when scores fall. But the most significant result was the overall saving of nearly USD 50 Million in hiring and training costs during that period.6

Analytics enable organizations to answer questions related to the links between their workforce and business performance:

Question 1: How does the workforce impact organizational success?

A simple approach to analytics utilizes the results of an organization's engagement survey and understands its relationship with financial performance over time.

Question 2: Which are the highest risk departments in the organization?

Analyzing the performance results of employees by department provides insight into the areas of the business that are struggling. It also points up areas for further analysis to ascertain if there are particular teams or individuals impacting the overall risk.

Question 3: Which HR policies or practices have the biggest effects on the organization?

By leveraging analytics, organizations can evaluate the ramifications of employee programs on employee engagement, retention, productivity and performance.

Question 4: How does the organization deal with changes in the workforce?

Analytics allow for more effective workforce planning by scrutinizing internal and external data to create "what if" scenarios. This enables the organization to mitigate workforce risks such as turnover and retirement, as well as to plan for periods of intense recruitment and retention activity.

Question 5: What can the organization do to improve retention?

Analytics enables organizations to understand what employees' value and therefore develop a more relevant Employee Value Proposition (EVP), which will differentiate their employee offer and aid retention across an increasingly diverse workforce profile.

Question 6: What skills will the organization need in the future to remain competitive?

This is analytics at its most sophisticated. By creating a talent supply chain, organizations are able to optimize their employees' work schedules, manage seasonal workforce changes, and forecast workforce demands based on market variables.

 Using Analytics to Increase Value for Money

A global materials technology company looked to optimize HR spend and engaged Aon Hewitt to support them with their analysis. The organization employed two HR professionals whose primary focus was managing union and union-related employee engagement, but the CEO questioned the value of retaining these two positions. Aon Hewitt discovered that over the preceding four years, there had been no days lost to strike action at the organization, as a result of HR's activities. By considering the market average of days lost to strike action and the annual revenue of the organization, the company was able to quantify the contribution of the two individuals as an estimated €0.9 million per annum. Positions that were initially thought to be surplus to requirements – and of considerable expense to HR and the organization's budget – were shown to be unique value-adding roles within the HR department.

More sophisticated analytics can also be deployed to support significant improvement in an organization's HR strategy, policies and practices. Managing total rewards, for example, will increasingly require more than a sense-and-respond approach to program effectiveness. It will require foresight – the ability to accurately forecast workforce trends, emerging competitive practices, potential regulatory changes, and the future wants and needs of the workforce.

By using workforce segmentation analysis, an organization is able to break down large populations into "groups" of employees in order to hone in on what is important to them and how each group might behave in certain circumstances. There is no "right way" to do this, but organizations can consider demographics (male vs. female, Generation Y vs. Baby Boomers); opinions and attitudes (satisfied vs. dissatisfied); usage, employee characteristics or behaviors (high users of healthcare services vs. those who are not, high performers vs. those who are not); and employee need or preference (tuition reimbursement vs. those who don't). Segmentation helps organizations understand the different needs of an increasingly diverse employee population. Using such analysis ensures that an organization's reward program is designed and communicated appropriately to optimize employee engagement and total rewards spend, while reducing attrition and risk.7

Analytics can also help manage absence by understanding where and why absences are occurring. Organizations that understand the root cause of absence are able to implement absence programs to resolve the underlying issue and deliver improved financial and operational performance.

The Pacific Gas and Electric Company (PG&E) promises strong commitment to delivering safe, reliable and affordable gas and electricity services. To honor this commitment to customers, the utility knew it needed to be properly staffed in customer-facing positions. It therefore focused its attention on absence management, an important area that directly impacts the customer experience, employee satisfaction, compliance and cost. The four-step solution Aon Hewitt put forward surveyed the employees and their managers; utilized detailed analysis of absence trends; reviewed existing absence management procedures; and involved onsite job observations. This solution delivered outcomes in eight broad categories, including the key groupings of management alignment and training, work/life balance, and satisfaction with advancement potential. As a result, PG&E has seen overall absence fall year-on-year since 2010.8

Analytics can also be utilized to refine organizations' talent sourcing models. As workforce costs and the competition for talent increases, organizations look for more innovative solutions to their recruitment problems.

A global transportation company with 22,000 employees wanted to optimize their global talent sourcing strategy. Historically, the recruitment of individuals with highly specialized skills from multiple locations had led to a lack of consistency and high turnover rates. An in-depth analysis of talent availability, cost and risk allowed a deeper understanding of the quality and skill levels available in the global locations currently used for sourcing, in addition to the cost structures and sustainability of the talent pool at those locations. The outcome was a focused approach to talent sourcing in those locations where the quality of the talent pool was highest for the particular skills required. The analysis also highlighted potential risks to sourcing in those locations, which enabled the organization to put in place practices that would allow them to monitor and mitigate those risks over time.

Creating a Competitive Advantage

The potential of HR analytics to provide keen insight on how an organization can maximize the value of its workforce is still to be widely realized. But, isn't optimizing the largest single investment made by any business worthy of consideration?

Moving forward, it will become more critical than ever to leverage the data available to organizations to derive greater insight and business intelligence to support decision-making. Analytics enables HR to be more proactive in driving business strategy, identifying high and low performers, recruiting and retaining talent, and developing HR practices and offers which employees truly value.

While "big-data" is increasingly available, implementation and the use of HR analytics is commonly hindered by the capability of collating and interpret the data in a meaningful way. Nevertheless, the price of ignoring the insights that workforce data can provide is high. While improved execution of data analysis creates an expectation among leadership of HR's capabilities, this is the direction HR must take if it wants to be a truly strategic partner and influence business strategy. HR owns data that can significantly influence the future shape and direction of the organization; knowing how to use it wisely will be the key to creating the organization’s unique competitive advantage.

Contact

For further information please contact: apac.marketing@aonhewitt.com


Notes

1.

Managing at warp speed. AON ONE, Q1 2013.

2.

Competing on Analytics, Harvard Business Review, January 2006.

3.

The Balanced Scorecard. R.Kaplan and D.P.Norton, 1996.

4.

Competing on Talent Analytics, Harvard Business Review, October 2010.

5.

Putting big data to work. AON ONE, Q1 2013.

6.

Competing on Talent Analytics, Harvard Business Review, October 2010.

7.

Total Rewards Survey 2012; Transforming Potential into Value, Aon Hewitt, 2012.

8.

Pacific Gas & Electric Company, Case Study, Aon Hewitt 2012 (http://360absence.alphazeta.com/wp-content/uploads/2012/12/AonHewitt_360Absence_PGE_CaseStudy_2012.pdf)