Can HR Demonstrate Its Business Value Without HR Analytics?

The 2016 Deloitte Global Human Capital survey indicated that only 32% of the respondents were ready to implement HR analytics, despite the fact that 77% felt they were very important. This large gap reflects the fact that, in part, since the Great Recession, HR budgets have been very tight as many companies struggled to return to profitability. In turn, it has been difficult for most HR functions to justify the large amount of expense typically needed to fund an HR Analytics function.

The use of HR analytics is in its infancy, even though many advances have been made in a relatively short period of time. Today, most current applications of HR analytics are used to improve the effectiveness and/or efficiency of its various administrative duties in such areas of talent management, recruiting, hiring costs, turnover reduction, and so on. In doing so, Chief HR Officers (CHRO) are hoping to demonstrate HR’s business value to the CEO and line executives in an effort to be considered as an equal business partner and get a seat at the C-Suite table. However, even when the right metrics are selected, are measured correctly and lead to actionable items, they can typically have only an indirect impact on a company’s profitability and strategic growth. In addition, this administrative approach has the distinct disadvantage of keeping HR off in its own administrative world – away from the financial, operating and strategic realities of the company’s business.

Therefore, the question becomes: how can HR operate without the use of HR analytics and still demonstrate HR’s ability to add business value to the company that will have a direct impact on achieving its financial, operating and strategic business objectives?

The answer to this critical question, first and foremost, lies in the desire of the CHRO or HR Leader to be a business person FIRST and an HR person SECOND. The first step is to have a meeting with your CFO to understand the company’s key financial objectives for the current fiscal year. Second, meet with the COO or Division Head to understand the key operating objectives for the current fiscal year. Thirdly, meet with the CEO or COO to clarify the overall business strategy for the company and each of its major divisions or groups. With the above information, the CHRO is ready to connect his/her HR resources to the company’s business objectives – financially, operationally and strategically while recognizing that some staff and budget resources will likely have to be realigned to do so.

To illustrate how HR can provide this business value, here are some examples of typical financial, operating and strategic business objectives that utilize some innovative HR services to help the CEO and line executives to achieve them.

Financial Objectives

1. To improve earnings per share from “X” to “Y” $/share.

     o With Finance, implement a Cost Control/Productivity Improvement Workshop to identify potential profit improvement opportunities.

     o With Engineering and Marketing, implement a Product Innovation Workshop to identify product innovations which can gain market share, reduce product cost and/or use more efficient technology.

2. To increase cash flow by “Z” $.

     o With Inventory and Manufacturing, implement an Inventory Reduction Workshop to identify items that can be eliminated, reduced or replaced by less expensive ones.

     o Train Sales personnel how to collect outstanding receivables to bring in more cash.