How Data Analytics Is Transforming Human Resources—and Fueling Corporate Return on Investment

- Author: Susan L. Wampler - Categories: ,
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The human resources field is undergoing a revolution, with big data playing a crucial role in improving employee recruitment and retention in a tight job market. But contrary to stereotypes about algorithms and artificial intelligence, the focus on data analytics is people-centered.

“Some HR professionals think of data analytics as dehumanizing, but the opposite is true,” says Solange Charas, who brings more than 30 years of industry expertise as a consultant and executive to the courses she teaches for the USC Bovard College online Master of Science in Human Resource Management (MSHRM). “When you don’t use data analytics, you’re only hearing the squeaky wheels and missing the big picture.”

She cites recent research finding that 60 percent of today’s consumers base their purchasing decisions on three factors: price, workplace conditions and pay equity. “Consumers now choose which company to buy products from based on how well their employees are treated,” Charas says. “That’s a game-changer.”

With 80 percent of the nation’s gross domestic product emanating from the service sector, it’s more important than ever for companies to focus on employee rewards programs, pay equity and building  a sustainable workforce, adds Tyrone Smith Jr., a global strategy and people analytics leader who also teaches in the MSHRM program.

“Without employees, you cannot deliver goods and services,” says Charas, co-author of the recently published Humanizing Human Capital: Invest in Your People for Optimal Business Returns.

“Companies are facing pressure to become more equitable and employee-centered,” Smith notes. “It’s not just from the talent attraction side. It’s from an investor and shareholder perspective. You have to look at it from all lenses.”

Low unemployment numbers, retiring Baby Boomers and changes in employee motivations wrought by the pandemic have led to the contraction of the labor force, with employees becoming more valuable in the process, Charas and Smith say.

From Trade Secrets to Transparency

In the past, benefits, compensation and other HR statistics were tightly held trade secrets designed to give companies a leg up in the marketplace. Laws even prohibited employees from discussing their salaries, Charas notes. Today, though, transparency is the trend.

“The more companies tell employees, candidates, customers and the market in general about how they’re managing and treating their workforce, the bigger the competitive advantage,” she says. “Organizations have to change the social contract between employer and employee. Some are having a hard time recognizing that they are ceding power to their employees. That’s why we’re seeing the rise in unionization and the trend to the gig economy.”

The move toward greater voice and more agency for employees accelerated after a watershed decision by the Securities and Exchange Commission (SEC) just before the onset of the COVID-19 pandemic. In November 2020, “the SEC ruled that human capital would no longer be categorized exclusively as an expense but as an investment in an intangible asset,” Charas says.

“Disclosures around human capital metrics and pay equity are becoming more prevalent and more transparent,” Smith says. “Ignoring the signals and symptoms you are seeing in the data is the quickest way to lose talent.”

Today, CEOs need to think differently about their balance sheets and their income statements, especially with the pressure caused by a shrinking labor force post-pandemic. Smart companies need to amplify a positive experience for employees at every stage of their relationship—from recruitment to departure from the company, Charas notes.

“The reality is that the workforce is changing and it’s not going to revert back to where it was,” Smith adds.

“I know plenty of CEOs who are sticking their heads in the sand saying, ‘Nope, we’re going back to the pre-covid days, and if our employees don’t like it, they can leave,’” Charas says. “Those organizations, are not going to make it.”

But it’s not just CEOs who need to rethink their approach to human capital, she adds.

Shifting to a Bottom-Line Mindset

Both Charas and Smith emphasize the importance of the HR function being able to show how the allocation of budget dollars toward employees will generate a return for the organization. But professionals have traditionally focused on HR as its own separate function rather than an essential component of the bottom line.

“Data analytics leads to business insights,” Charas says. “Business insights lead to action. And action leads to outcomes. With organizations spending 70 to 80 percent of their total expense on people, small improvements in human capital return on investment can general a big impact on profitability.”

Determining which competing initiatives within the human resources realm offer the wisest use of limited resources can be challenging. Training and professional development, recruitment, onboarding, performance management, benefits and compensation—along with diversity, equity and inclusion efforts—are just a few of those categories.

Data analytics can provide the answer. For instance, it’s less expensive to promote from within for higher-level positions, Charas notes, so an investment in training might lead to stronger bench strength, greater internal mobility and promotions, and therefore lower attrition.

“Once I can quantify the benefits of an initiative, I can demonstrate that a $2 million investment in training is going to help the company avoid a $6 million cost,” she explains. “When I go to the CEO or the CFO with that proposal, they will take that deal every day. Because nowhere else in the organization—not finance, not accounting, not production, not operations, not marketing—nowhere else can they deliver that kind of leveraged value.”

“Data analytics from a human capital perspective really is the new currency,” Smith says. “Organizations should leverage these tools to gain deeper insights into their workforce and to manage talent and, ultimately, profitability.”

Both Smith and Charas teach students in the MSHRM program to think beyond the boundaries of HR as a function and focus on how their role as an HR leader supports the company in achieving its overall goals.

“Our students need data analytics and financial literacy to prepare them for their future as HR professionals because that’s the way the function is moving,” Charas adds. “They need to be able to speak the same language as the C-suite executives.”

“HR leaders of the future will definitely have to be more agile,” Smith says.

One Size Does Not Fit All

Another big trend in HR is increasing personalization. HR benefits programs were once standardized but that approach is no longer viable in today’s marketplace.

“The strategy around benefits is starting to shift due to demographic changes,” Smith notes. “Baby Boomers didn’t want certain benefits that Millennials and Generations Y and Z do. Today, employees want to work for organizations with missions they believe in.”

“We need to move away from a one-size-fits-all approach,” Charas adds. “We might need to create four or five segments of rewards because we have five generations in our workforce.”

Rewards can be anything that delivers perceived or real value to an employee—including promotion, geographic mobility, professional development or wellness programs.

With many employees reluctant to return to a daily commute, companies that offer flexibility rather than forcing people back to the office will be more likely to retain top performers. And organizations that use data analytics to understand the collective and segmented needs of their staffs will be better able to make informed decisions relating to their greatest asset: their people.

“Organizations need to be proactive and not sit back and wait for a mass exodus of employees to make changes,” Smith cautions. “By using data analytics to identify actionable insights, companies can mitigate the risk and expense of losing top talent.”

Ensuring a More Equitable Workforce

As artificial intelligence and digital transformation become prevalent in HR, it holds the potential to transform the field in other important ways. It enables the deep informational dives needed to remedy gender and racial gaps in pay equity and promote diverse workforces.

However, Smith notes, since algorithms are only as effective as the information inputted, managers need to be careful that unintentional biases don’t become part of the AI programming used for hiring as well as tracking and rewarding employee success.

This is becoming even truer as principles of diversity, equity and inclusion become more important across the public and private sectors—and is expected not just by employees but also by all of a company’s constituents.

“Customers, investors and stakeholders want to know how a company treats its employees in addition to how it is performing financially,” Smith says.

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