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Dave Foxall Human Capital Analytics Software – 5 Quick Impact Metrics

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 By Dave Foxall

Showing Measurable Results with HCA Software

HR "management by metric" has been around for some time now but increasingly the business focus is on the use of human capital analytics software to provide data-driven, fact-based analysis and backed-up predictions. As the 2011 white paper, HR Analytics: Driving Return on Human Capital Investment states, "HR analytics can help an organization improve its profitability through more effective workforce cost control, balancing the lowest effective headcount while ensuring satisfactory service delivery", hence the attraction for the C-suite decision-maker. The truth about these business intelligence software solutions, according to CedarCrestone's report, Going Global with HR Technologies is clear: "Global organizations with workforce analytics and workforce planning outperform all other organizations [by] 30% more sales per employee and 81% higher net operating income growth." However, despite these benefits – and the numerous Human Capital Analytics (HCA) software packages available – many organizations are still struggling to make the shift, either because they have yet to introduce even basic metrics or they are unsure of the next step on their journey.

The Human Capital Software Adoption Problem

At the Society for Human Resource Management 63rd Conference in June 2011, Joanne Bintliff-Ritchie highlighted a fundamental problem with HCA software: many organizations measure, some produce metrics, but very few know how to convert them into "decision-supporting insights" (let alone select an appropriate HR software solution) that can guide strategy. In some ways, it's simply a question of terminology. For example: A measure might be 'leavers per year'; a metric would be a breakdown of leavers by age, location, qualifications, reasons for leaving, etc.; an analytic would be a root cause analysis of contributing factors or a forecast of which employees might leave in the coming year and why; enabling strategies to be developed that could influence the scenario and affect retention rates, productivity and profit.

On the other hand, Deloitte's 2011 research on Human Capital Trends found that organization's use of HCA software falls within one of five categories of maturity:

  • Non-existent – analytics are not used in business operations.
  • Developing – analytics are used on an ad hoc basis to improve business operations.
  • Defined – the organization produces periodical reports that management uses in decision-making.
  • Advanced – in addition to periodical reports, management utilizes data to test hypotheses and improve the quality of business operations.
  • Leading – sophisticated predictive modelling is used in scenario-based analysis. Data points management to determine opportunities for improving operations and mitigating risks.

By identifying the current state of implementation, an organization can gain a clearer view of where their strategy needs to take them next to fully leverage the benefits offered by Human Capital Analytics software solutions.

5 Basic Metrics to Look For In Your HCA Software

For organizations at the early stages of HR analytics use, Gartner's Thomas Otter suggests starting small with, "a single metric (such as head count) or a single issue (such as how to get the most impact from a training initiative)." The key is to choose metrics (and by proxy HR software solutions) that are right for the business strategy. A 2011 Aquire white paper identifies these "right" metrics as being accessible (to those who need them), auditable (i.e. independently verifiable) and actionable (the organization can use the data to influence the future).

Here are five sample Human Resource metrics that many organizations find useful as part of their HCA software suite and a step towards full HR strategic partnership:

  1. Ratio of compensation and benefits costs to revenue/profit (an indicator or compensation effectiveness that can be compared year on year and pursuant to industry averages);
  2. Employee turnover rate of new hires within the first year (cross-referenced to personal data, role and function, immediate colleagues, etc.);
  3. Percentage of new hires that cite excellent training opportunities as among the top three reasons they accepted the job (compared with the percentage who rate training opportunities as excellent after 12 months in the job);
  4. Turnover percentage of low-performing employees within one year of receiving the low rating (an entry point into drilling down into the effectiveness of poor recruiting, performance management and procedures);
  5. Percentage of employees with top level performance ratings against salary levels (an early step in analyzing reward/performance correlation and linking into talent management)

Whichever HR metrics are the best fit for an organization, the focus should always be on creating a tool to enable more timely and better quality decision-making.

Human Capital Analytics Software – The Bottom Line

HCA software is how HR will increasingly demonstrate its contribution and gain a permanent 'place at the table'. According to Jay Jamrog at i4cp (the Institute for Corporate Productivity), "HR departments in high-performing organizations often take an "outside in" or future-leaning approach to metrics and analytics. To do this, they start by identifying the business model, its components and what drives value in the organization. Then they develop an HR strategy to execute the business model. Only then do they implement metrics that gauge the degree to which they're successfully serving as a strategic partner." The key to Human Capital Analytics software is to adopt the right metrics and measures in order to provide insight on areas of genuine importance to the business. Indeed, the focus cannot just be on 'justifying' HR's existence but rather on highlighting HR's measurable worth and direct support of the company's most strategic objectives. End

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"Global organizations with workforce analytics and workforce planning outperform all other organizations."


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