The ROI of talent management data and analytics as the strategic game changer for HR
November 16, 2020
Since the global financial crisis in 2008, change in the business world has surged unabated, creating new pressures, which are demanding a renewed perspective on performance and the associated practice of talent management.
In fact, according to the Oxford Economics Global Talent 2021 report, survey participants identify advances in technology (42%) and globalization (41%) as well as shifts in labor demographics (38%), customer needs (38%) and competition (38%) as underlying forces that will have the biggest impact on their organization's talent requirements in the years ahead.1
Within this drive for performance, there is an equally focused push for tangible returns on development investments. Based on its survey of 313 CEOs, CFOs and HR Directors (conducted by The Economist Intelligence Unit) the Chartered Institute of Management Accountants (CIMA) and the American Institute of Certified Public Accountants (AICPA) concluded that, "organizations striving for sustainable performance and success therefore need to work smart, ensuring effective investment in human development provides the expected ROI and supports the business strategy." 2
But how? How can you support business strategy with your talent management practices and deliver ROI to the executive team? It is time to use information to your advantage. The strategic use of data and analytics in talent management can further position HR as the steward of people development practices that drive performance and contribute to business objectives.
THE DISCOMFORT WITH DATA
Janice McNulty manages the Continuous Advancement Team at Halogen Software, a leading provider of cloud-based talent management solutions. Her focus is on helping companies understand their talent management metrics to connect talent strategies to business objectives. She also helps the HR leaders at those companies use data and analytics to impact business results.
"While there is a strategic dialogue around human capital, some HR leaders aren't comfortable with data, mostly because they haven't had sufficient access to it yet," says McNulty. "They've embraced a certain level of automation and integrated talent management. The aspiration to correlate human capital and business performance is definitely there, but there's still some hesitancy about using data to quantify the connection."
The CIMA and AICPA study revealed similar findings, highlighting that, "our survey shows that while most companies understand the importance of human capital, they do not appear to have the right systems, processes and information in place to manage talent effectively." According to the research, only 12% of CEOs are confident about the quality of metrics that senior management receives on human capital.3
ADJUSTING PEOPLE STRATEGY TO THE PACE OF BUSINESS
McNulty views data and analytics as a strategic game changer for HR, which is a sentiment echoed by the largest HR associations and research think tanks. In its 2012 Competency Model for HR, the Society for Human Resource Management (SHRM) cites 'Critical Evaluation' and associated metric and data analysis capabilities as one of the nine elements for HR success.4
McNulty uses the analogy of rowing a boat. People are muscling the oars, driving a business toward a specific destination, whether it's an objective or a result. Without the right enablement, those 'rowers' won't be able to steer the business in the right direction. And ultimately, HR is responsible for that people enablement.
"HR must understand where there are performance issues and development needs to course correct properly. Data gives a tangible view into the performance and business impacts of people strategy," says McNulty.
Yet, in the absence of data, the traditional HR practice of 'going with the gut' still predominates. McNulty stresses that there is still a place for well-honed HR instinct, but that data and analytics can provide tangible metrics to support that gut feel and create a better people strategy 'sell' to other business stakeholders.
The companies that she's working with are focusing on actionable data that's allowed them to make measurable improvements. The revelation for many of these companies has been talent management ROI.
"I'm seeing companies using data for the first time to identify which employees are using development plans, whether those development plans connect to competencies and whether the right competencies are being developed," says McNulty. "Instead of hoping and relying on instinct, these HR leaders can measure competencies before and after the learning activities occur and determine whether adjustments affected performance."
The feedback from those venturing into data and analytics has been overwhelmingly positive. The general consensus is a growth in confidence to back up gut feelings with tangible metrics and complementary action plans.
"My clients are shaking things up with their executive teams, working directly with specific managers and adjusting training plans more immediately. They have the tangible outcomes they need to support changes in people strategy and justify development investments based on ROI," says McNulty.
GETTING STARTED WITH DATA
For organizations looking to delve deeper into data to drive talent management ROI, McNulty recommends the business strategy as a starting point. Knowing what you want to achieve lets you to create key performance indicators to measure success.
For example, if world-class customer experience is your business strategy, you may want to examine various roles that serve as contact points with clients and how these roles are being assessed in terms of customer focus. Then you can evaluate competencies and customer-focused services. It's a top-down methodology that starts with business strategy and ladders down to specific competencies.
Once the top-down methodology is in place, McNulty advises investing time and effort to determine whether you are collecting the right data to measure success against strategy.
For example, if you have a customer experience focus as your overall strategy but you aren't measuring your people on their ability to deliver customer experience or identifying whether you have gaps in this competency, it can be challenging to correlate people strategy and business impact. It will also be difficult to showcase the value of your talent management practices and development investments.
The final recommendation focuses on action. McNulty explains. "HR leaders must make a commitment to taking action with the data and stay accountable to that goal," she says. "There needs to be ongoing sharing with executives, management and the leadership team. And persuasion and tenacity may be required to fight for the changes that the data shows are necessary."
McNulty also stresses the importance of buy in from the organization as part of the action plan. In her view, it's essential to find a champion who believes in the importance of aligning business and people strategies. However, even in the case of lacking support, McNulty urges HR leaders to think about how they are going to be heard.
"Being heard can be as simple as just presenting the data and using the facts and figures to show possible challenges or poor performance if proposed changes aren't made," she says.
TALENT METRICS ARE BUSINESS METRICS
McNulty is resolute that data and analytics give HR leaders a stronger voice and value proposition in the strategy dialogue with their business peers.
"The connection between talent metrics and performance is shaping more of the conversations between HR and other business leaders," says McNulty. "It's clear that employee performance is only growing in importance as a key business metric. With data and analytics, HR has an opportunity to showcase metrics-based talent management ROI and take more tangible ownership over performance.
- Oxford Economics. Global Talent 2012. Page 4.
- CGMA Report. Talent Pipeline Draining Growth; Connecting Human Capital to the Growth Agenda. September 2012. Page 10.
- Ibid. Page 1; Page 10.
- Society for Human Resource Management. Elements for HR Success: SHRM's Competency Model for HR. June 2012.