Ongoing global economic challenges and uncertainties have meant that HR has had to focus on process and cost efficiencies as a business critical priority for some years now. This has meant that ongoing trade-offs between quality and cost have been necessary. Finance and budgeting challenges will always drive such an approach but this is where data based business cases (based on business assumptions and data trends) has never been more important to HR. Without it the focus is on solely reducing cost whereas the focus should also be upon business growth and profitability through people. When cost containment efforts start, the results can be fairly significant but as time passes and the efforts continue the value of the savings start to diminish. Today, cost containment efforts relating to HR are likely to be a small proportion of the overall corporate budget, so the savings are likely to be minimal, whereas any focus on business growth and income has substantially less limitations or restrictions.
On top of this, I believe that the cost focus has resulted in HR downsizing itself to the point where the most useless HR metric ever devised (HR employee to Organisational Employee ratio) has become the “holy grail” when in fact it is totally counterproductive and has resourced HR to the point of being no more than an operational reactive support function! Some form of bandwidth is required if any function is to be innovative and transformational as the future of work is dictating moving forward.
HR seems to be getting the importance of the analytics debate and is rightly focusing on becoming more “data savvy” and using their own data and the business data of the organisation to make connections and predictions about what has and more importantly could happen in their organisation. This is not an easy journey and once your data has been “cleaned” and verified, the initial analysis has been undertaken and the conversations that they instigate have been had etc. this can take weeks, maybe months to make sense of what is happening. From there (the easy bit!) comes the embedding of the learning, the process and the methodology into the organisation so that a “rhythm of data” can occur. This assumes of course that the culture of the organisation is accepting of a less intuitive and more data based decision-making style – something that can’t always be assumed will be accepted with “open arms”.
This of course takes time to get it right and the desire for “Quick Wins” is important to show an early demonstration of value and tangible return from the investment being made both in terms of data analysis and of course the people practices themselves that are being diagnosed in terms of “value add”. “Quick Wins” also then raises the question of what’s next? This accepts that there is still a long way to go with the analytics journey but we are always critical of HR not being proactive and showing initiative so for me it’s the right question to at least be thinking about.
For me every support function should ultimately aspire to become a profit centre in their own right. Historically most people in HR seem to have accepted that their function isn’t capable of generating a profit and is therefore doomed to be more operationally focused. I disagree; such a pessimistic view will become a self-fulfilling prophecy for too many organisations. I accept that a lot of the HR functions in existence today are not currently capable of demonstrating a measurable impact on productivity or profitability by design but times are changing with analytics now supporting HR to be able to demonstrate the economic value of it programs and practices.
Looking to the future of HR then, the drive to demonstrate business impact of everything that HR does is crucial whether it revolves around:
- Showing a direct correlation between the improved business outcomes (sales, process efficiency) from an employee program.
- The linkage between a particular process or method (such as recruitment for example) and its’ impact upon productivity, revenue or profit.
- Pre and post measurement of employee performance/outputs prior to an employee program implementation.
- Demonstrating the business impact that a program can have on a ‘control’ group over another group within a business function.
- Predicting the success that could occur if a particular business case or approach is adopted (e.g.: focusing on outlier’s high levels of performance as the new normal rather than accepting competence as the standard).
The impact of an analytics approach to HR is that instead of focusing on the justification of their existence the focus can now be on reflecting back to the organisation (using their business language not HR’s) the tangible impact and value that our HR programs can provide to an organisation. With that mind-set that means that we can now think about being a profit centre not a cost centre because we are ‘on the front foot’ and talking about growth, profitability, productivity not about HR process efficiency and HR to employee ratio (as I said earlier the most meaningless metric ever invented).
Executives are relentless when it comes to business performance and the accountability that they expect from all of their direct reports. The shift to a profit centre mentality starts with the HR function focusing on:
- Those aspects that the CEO and their top team get measured upon and focusing on providing data based insights and more importantly growth related data based upon HR interventions and programs.
- Closely collaborating with the finance and marketing functions so that their business data and numerical expertise can be utilised to build tangible business insights that ‘raise the bar’ for HR’s performance levels (income targets not process completion or project completion targets for example!).
- Think business outcomes at all times not HR related outcomes that focus firstly on growth/income and secondly on cost savings where feasible.
Analytics is shifting the expectations of HR and their internal clients but we need to be thinking of ‘what’s next’ and for me the ultimate outcome of an analytics approach to HR is not that we are more numerate but that we become a profit centre in our own right not just a cost centre.
Analytics are not the end game; they are the enabler to an HR function that can demonstrate business Credibility, a Commercial mind-set, a developing Capability to improve underpinned by a function that has the Courage and Confidence to make the changes in approach that are necessary though a more collaborative Connected approach to work (I call these the 6 C’s).
That is the opportunity that exists for our profession – we can and must do it!