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Question for your HR chief: Are we using our ‘people data’ to create value? - McKinsey Quarterly - March 23, 2011 -  by Nora Gardner, Devin McGranahan, and William Wolf
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Question for your HR chief: Are we using our ‘people data’ to create value? - McKinsey Quarterly - March 23, 2011 - by Nora Gardner, Devin McGranahan, and William Wolf

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Human-resources executives have aspired to be strategic advisers to business leaders for at least a generation. But it’s been a struggle for many because it’s so difficult to measure the business …

Human-resources executives have aspired to be strategic advisers to business leaders for at least a generation. But it’s been a struggle for many because it’s so difficult to measure the business value of HR approaches. Questions such as “What is the ROI1 of training?” and “Which screening techniques yield the best performing recruits?” or “What target-setting approach will best motivate performance?” have been met with imprecise answers.

Today, however, new tools and methods for analyzing data enable HR to define the link between “people practices” and performance more effectively. This couldn’t have happened at a better time, since CEOs are hunting for value anywhere they can find it. The upshot: if you and your head of HR haven’t recently discussed ideas for using data to generate a talent strategy that’s more closely linked to business results, it’s time to start.


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  • 1. M A R C H 2 0 11 Keith Negleyo r g a n i z a t i o n p r a c t i c eQuestion for your HR chief:Are we using our ‘people data’to create value? Nora Gardner, Devin McGranahan, and William Wolf By analyzing the links between people practices and productivity, some companies are improving their bottom line. Human-resources executives have best motivate performance?” have aspired to be strategic advisers to been met with imprecise answers. business leaders for at least a generation. But it’s been a struggle Today, however, new tools and for many because it’s so difficult to methods for analyzing data enable measure the business value of HR to define the link between HR approaches. Questions such as “people practices” and performance “What is the ROI1 of training?” and more effectively. This couldn’t “Which screening techniques yield have happened at a better time, the best performing recruits?” since CEOs are hunting for value or “What target-setting approach will anywhere they can find it. The
  • 2. 2 March 2011 upshot: if you and your head of HR department stores in the United haven’t recently discussed ideas States, for example, leveraged its for using data to generate a talent data to identify attributes that strategy that’s more closely linked made cosmetics sales reps succes- to business results, it’s time to start. sful. Now it screens potential reps using a test of cognitive ability, Why now? For starters, the wide- situational judgment, initiative spread adoption of enterprise taking, and other relevant traits. resource planning and HR informa- Those who score in the top half tend tion systems has made data on to sell 10 percent more product business operations, performance, than the others and tend to like their and personnel more accessible and work more. Since 2008, the chain standardized. Furthermore, the has seen an increase of $1,400 in rise of HR information systems has sales per representative and 25 per- generated a community of soft- cent lower turnover among them. ware and technology intermediaries that can help HR and business Other pioneers are emerging, par- executives use data to find links ticularly in industries where between talent management people are central to value creation and labor productivity. Finally, the (notably banking, health care, consolidation and outsourcing of and retailing) and where scarce transactional HR work has compel- technical expertise governs growth led many leaders of the function (such as technology and upstream to take a first step toward quantify- oil exploration). While the specific ing and reporting HR costs and people-related practices that performance. add value will differ by company— industry dynamics, talent scar- These trends, coupled with the city, growth rates, and corporate universal imperative to get more for cultures all influence the answers— less, have led some companies the organizations that we’ve to discover new ways of using HR seen get the most value from invest- analytics to create value. The ing in HR analytics all use some Bon-Ton chain of more than 280 variation of these four steps.The Bon-Ton chain of more than280 department stores in the United Statesleveraged its data to identify attributesthat made cosmetics sales reps successful.
  • 3. Question for your HR chief: Are we using our ‘people data’ to create value? 31. Focus HR on business priorities Most HR teams view, organize, and and business results. PNC’s team, measure their activities through for example, asked line execu- the traditional employee life cycle: tives what they saw as the highest- starting with recruiting, hiring, value opportunities for improving and “on-boarding” and proceeding talent management. From these dis- to evaluation, training, and develop- cussions, the analytics team ment. For HR analytics efforts distilled a top-20 list of business to work, however, the function’s questions and hypotheses to leaders must view problems— test, such as “What is the business and value creation opportunities— impact of training investment?” as business leaders do. and “Is there an optimal distribution of performance ratings?” The Executives at Pittsburgh-based PNC team then ranked the resulting PNC Financial Services, for example, list of issues by their expected suspected that their tendency business impact and the feasibility to pick experienced outsiders over of conducting meaningful analysis. internal candidates in hiring “This is where HR has the chance decisions might be hurting the bank: to prove itself,” says Jay Wilkinson, once hired, the outsiders were PNC’s new HR vice president of too often viewed as lukewarm per- analytics. “Better than coming formers. So in 2009, PNC’s HR team to [business leaders] with tired best partnered with colleagues from practices, we’re asking them the company’s marketing-analytics how they define success specific group to analyze the sales per- to their business, and that provides formance, over several years, of the context for our analysis and external hires versus people recommendations.” promoted from inside. What the team found confirmed the Google is another company with suspicions: in a number of key job an HR team that partners with categories, internal candidates business leaders seeking analytic were significantly more productive in insights. According to Prasad their first year than experienced Setty, head of Google’s people external hires. In subsequent years, analytics group, “We are looking to the outsiders narrowed—but inform decision makers with data never closed—the gap. Millions of so they can be as objective and bias dollars in value were at stake. free as possible.” Setty’s team has, for example, provided business It’s unusual for business or HR executives with a systematic leaders to spot pain points such as approach to reassessing provision- these on their own. Typically, ally rejected candidates. The a strong partnership is crucial for team’s analysis of profiles that lead identifying and prioritizing issues to success at Google helps it that intertwine people challenges identify potential false negatives and to revisit these candidates. This technique has helped the companyListen to a podcast with Google’s Hal Varian— “save” many hires it would otherwisewho describes how companies can convertdata into knowledge—in “Clouds, big data, and have missed.smart assets: Ten tech-enabled businesstrends to watch,” on mckinseyquarterly.com.
  • 4. 4 March 20112. Start with what you have Quantitative problem-solving analytics group. Other companies skills may be hard to come by in the lean on finance or strategic HR department. Therefore, planning. Most pull the necessary senior executives who are eager to people into the HR function over begin should push their HR leaders time, as PNC did in the course to draw in analytical resources of a year when it decided to build wherever they exist. All that’s a specialized HR analytics required is the ability to engage department. business leaders in efforts to identify issues and structure problems And remember: many analyses can in a nuanced way and then to follow be conducted using existing through with advanced data data and systems. Some work may gathering and statistical analysis. be needed to match payroll data or training-attendance rosters with Retailers, for example, typically sales performance results, for entrust analytics to store operations example, but creative, persistent analysts who understand the analysts can answer most busi- high priority the business places on ness questions without new, sophis- containing labor costs. PNC’s capa- ticated, or costly tools. bility emerged from its marketing-3. Go beyond traditional HR solutions New insights often require additional of teams. We then conducted problem solving to go from theory double-blind interviews to identify to practical solutions. HR analytics the key behaviors exhibited by succeeds when human-resources our best managers. We found eight and business leaders work together behaviors that make a good to address the root causes of manager and five pitfalls to avoid. problems and to pilot new ways of These are now incorporated into solving them. our manager-training programs and coaching sessions, and teams Google, for example, did a study provide feedback to managers on to examine whether good man- these behaviors to help them agers matter—and, if so, how—within understand where they’re doing well Google’s specific culture. Setty and where they can get better. explains that “through various The vast majority of our lower-rated methods, we found positive relation- managers have improved as ships between good management a result.” and retention and the performance
  • 5. Question for your HR chief: Are we using our ‘people data’ to create value? 54. Make it stick Once a company has a few succes- success. At financial-services giant ses with HR analytics, it can build ING, for example, business units a lasting source of value creation by and HR share a comprehensive dash- integrating analytics practitioners board, supplemented by regular into its day-to-day business and HR reports, to show progress on key rhythms. Several companies, metrics. Similarly, a global oil for example, have established a giant’s people-strategy group reports routine of having HR or other progress at four stages of a “people strategy” staff join business project’s development: data gather- reviews to identify priorities for ing, analysis, developing solutions, analysis. This practice helps senior and piloting. This approach helps line executives conduct problem- HR and business leaders under- solving discussions around stand that progress is happening HR-related issues and to plan for even when stages may take action as findings emerge. weeks or months to complete. It also provides a clearer understand- HR analytics practitioners must ing, in both directions, of changing also commit themselves to the habit priorities and emerging findings of measuring and reporting on from the work. Advances in technology are creating Nora Gardner is an associate opportunities for senior business principal in McKinsey’s Washington, and HR leaders to start a new kind DC, office, of which William Wolf of dialogue about the link between is an alumnus; Devin people and performance. That McGranahan is a director in the dialogue will help HR executives Pittsburgh office. demonstrate the impact of their work and achieve their goal of Copyright © 2011 McKinsey & Company. strategic partnership with other All rights reserved. We welcome your members of the senior-management comments on this article. Please send them to quarterly_comments@mckinsey.com. team—and, of course, it will create value for the enterprise. 1 Return on investment.

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