Vol. 48, No. 9
Gain competitive advantage through HR data analysis
First in a two-part series.
The human resources function has changed. Over the last decade, the role of the HR professional has migrated from an isolated back office and occasionally bureaucratic function to one that is viewed as a competitive advantage that helps organizations achieve strategic business objectives.
Technology has been a critical enabler of this transformation; however, most organizations do not realize the full potential of the benefits this technology offers. An immense amount of data is available within any organization, but often it is not being leveraged to identify potential areas in which companies could gain competitive advantage. There is gold in that data that has yet to be discovered. Effective analysis of HR data can give an organization that competitive edge.
Until the 1990s, executives typically viewed the HR function as a necessary administrative expense or as part of the cost of doing business. As technology evolved, it became a vehicle through which organizations could gain efficiencies, especially in those areas in which the volume of information and transactions were high. That made the HR function a perfect candidate for automation. As the economy began to expand in the mid- to late 1990s, workforce demographic shifts became obvious, and the war for talent became a hot topic in many board rooms. CEOs began to realize the value of a strategic HR organization.
But while some organizations have embraced the concept of a strategic HR function, others have not. The latter are losing competitive ground and eventually will be forced to re-evaluate their HR delivery models. The days of HR filling only the role of a transactional taskmaster—submitting medical forms, updating contact information, realigning 401(k) investment allocations and filling staff openings—will soon disappear.
Technology has played a key role in enabling HR functions to become more strategic. The basic HR administrative and transactional responsibilities must still be done effectively. This demand has not changed for any organization; however, technological advances make such transactions less paper-intensive and provide the capability to shift transactional responsibilities and routine inquiries to employees and managers through self-service features. With routine transactional duties distributed throughout the organization to managers and employees, HR professionals are freed to contribute more strategically within the organization.
While the advantages of technology in the area of self-service capabilities are currently being explored by most organizations, many other organizations have not yet realized the competitive advantages of using the vast amount of data available to them within their current HR system.
Mining the gold in HR data and thereby gaining competitive advantage is the next step in HR’s continuing evolution. Combining HR data with other business or environmental information allows organizational leaders to act more quickly and make better decisions, enabling them to achieve business objectives.
By marrying quality people information with key business data, decision-makers can gain a better understanding of business processes and drivers.
There are four key nuggets in which competitive advantage—or gold—can be unearthed through HR data mining. This month, we’ll examine two of them: turnover analysis and employee development.
Understanding turnover and its drivers can provide an organization with key information to manage staffing needs and proactively manage associated costs. Significant competitive advantage can be gained in the marketplace if an organization proactively manages and controls turnover.
The widespread focus on talent shortages in the late 1990s helped to put HR practices in the spotlight and to gain HR leaders a seat at the executive table. The low unemployment rate, in conjunction with the shifting demographics of the workforce—mass exodus of baby boomers, increase in minority representation—and the huge demand for technical skills forced C-level executives to educate themselves on the importance of culture as a key differentiator in the marketplace. Suddenly, an organization’s culture and the HR practices supporting it became a focal point for investments and discussions in the executive suite.
While the availability of funds was a breath of fresh air for HR executives, the pressure to perform was never more intense. As the economic downturn began in 2001 and unemployment rates began to rise, the emphasis shifted away from investment in HR to more-efficient HR functions. While the overall unemployment rates have risen, evidence shows that the war for talent is still raging for certain skill sets, such as nursing and systems engineering.
For example, our studies show that more than 85 percent of hospitals have nursing shortages. Why is there a shortage? The answers are disturbing for HR professionals in health care who are challenged each day to solve the problem. Significant contributing factors to the shortage of nurses include:
- In 1984, 51.8 percent of registered nurses (RNs) were under the age of 40. In 2000, that number dropped to 31.7 percent.
- With a current average RN age of 45 and a high burnout rate, the RN ranks will thin considerably over the next five to 10 years.
- Since 1995, enrollment in U.S. nursing schools has declined steadily. Since 1993, enrollment has decreased 22 percent.
As HR professionals in health care begin to understand the talent supply market drivers for nurses, they are better able to position retention-focused initiatives within their organizations. Simply placing an advertisement for an RN is no longer an answer in this scarce talent environment. The focus must shift to retaining the talent already existing within the organization in addition to creative recruiting strategies.
While turnover is a continuous cycle in any business, it is costly and disruptive and can have a significant impact on an organization’s ability to compete, especially when specific skill sets are involved. For example, a health care organization with 1,000 RNs on staff with a turnover rate of 26 percent will spend $23 million annually due to RN turnover. Even a 1 percent decrease in RN turnover will result in an approximate annual savings of $1 million. Not only will the organization gain a competitive cost advantage, but also by understanding and reducing turnover it will be able to maintain superior patient service by offering the skills necessary to deliver quality health care.
To begin a turnover analysis, HR professionals should ask these questions:
- Are particular areas of the organization turning over more employees than others?
- Are particular geographic regions more susceptible to seasonal turnover than others?
- Can trends be identified that will help to streamline sourcing, hiring and retention practices?
Identify and Analyze Trends
A key component to turnover analysis is the ability to identify trends and to understand the reasons behind them. Perhaps external market factors are at work, prompting employees to leave one company for another. Or, perhaps internal challenges are leading to increased turnover within a particular business unit. By combining turnover trend data with data gathered from existing HR practices—such as exit interviews—turnover analysis can either validate or invalidate an organization’s assumptions regarding turnover drivers. Analyzing key turnover statistics—including total company turnover, turnover by position, turnover by particular geographic region and turnover within a particular function—can help to identify critical drivers.
In addition, other key details, such as workforce demographics—age, race, gender and average length of service—can be analyzed to assess any potential diversity issue within the organization. Turnover trend data can also be compared to national and local employment statistics to accurately gauge whether the turnover is comparable with the current employment market. Continually analyzing turnover trends enables an organization to understand and respond to issues prior to their becoming a disruption to achieve business objectives.
A key differentiator for many organizations is how well they provide development opportunities for employees. Employee development provides competitive advantage both by enhancing the skills and knowledge of the workforce and by increasing retention rates of key employee groups. Employee development occurs in a number of methods, most notably through formal training programs and development assignments.
Specific data analysis in the area of formal training programs might include:
- Costs. The benefit must outweigh the cost. By compiling training-related expenses, an organization can determine the total cost for each training program by region, location or employee demographic. This data can be compared to impact data to demonstrate return on investment (ROI) for individual training programs.
- Usage. By tracking employee completion and enrollment rates, an organization can determine a measure of program usage. The best training program in the world is useless unless measures are in place to ensure its effective implementation.
- Training impact. Are employees applying what they learned during training? Are specific work-related behaviors changing in accordance with learning objectives? By identifying data elements that can measure pre- and post-training performance, an ROI analysis can be completed to assess the success of a company’s training program. For example, an organization could measure sales revenue before and after implementing a sales training program. Another area relating to training impact is its effect on employee retention and advancement. Are employees progressing as expected? Have retention rates improved? Has individual performance improved?
In addition to formal training programs, developmental assignments can be tracked in an HR system. Over time, an organization can construct successful career paths and gain insights into key development needs by analyzing the data available. Skill gap analysis for individual employees can identify gaps to close to meet desired job requirements. Managing investments in all areas related to employee data will not only provide organizational leaders with the confidence that they are getting a return on these investments, but it will also position the future leaders of the organization for success.
To conduct an employee development analysis, answer the following questions:
- Which employees have attended a required training event?
- Which employees are enrolled for a specific training class?
- What is the retention time of employees who have completed a specific development activity?
- What is the correlation between performance ratings and participation in specific development activities?
- What is the correlation between business unit performance and the implementation of a development program?
Your HR management system is running smoothly, and employees and managers have embraced your self-service applications. Are you effectively using the wealth of information that is contained within these systems? Are you leveraging technology to gather and analyze key data that can help you reach your HR management goals? Take the time to determine how you can collect and implement employee data to demonstrate the HR function’s value and potential.
Editor’s note: Next month’s column will look at technology’s potential role in workforce planning and cost analysis.
Beth Patterson is a senior manager and Steve Lindsey is a senior consultant with the Human Capital Advisory Services practice of Deloitte & Touche in Dallas.