Magazine article HRMagazine

Should Companies Have Free Rein to Use Predictive Analytics?

Magazine article HRMagazine

Should Companies Have Free Rein to Use Predictive Analytics?

Article excerpt


To become full business partners, HR must be able to measure-and predict-business results.

HR leaders are quick to say "People are our most important asset." But this statement is incomplete unless it continues " ... and therefore our biggest potential liability."

Managing assets is a business process that requires effective analysis. HR's desire to be taken seriously by business leaders can only become reality if HR is capable of demonstrating how it affects business results. Doing so requires predictive analytics.

Many HR organizations invest in talent acquisition systems and processes that harness significant employee data. Implemented effectively, talent acquisition methods provide HR with invaluable baseline information as to how new hires perform against incumbents in the same positions. Not only can this information be applied to the employee life cycle, it also serves as a baseline and comparative source for predictive purposes.

Here is a real case. My team and I led a five-year global study of a transportation company. We found that there was a 74 percent voluntary turnover rate among about 9,500 customer-facing employees. The annual cost translated to $68 million. The consequences were low employee satisfaction, which caused low employee engagement, which in turn resulted in low customer satisfaction.

Further analyses showed irrefutable evidence that voluntary turnover was impacted by four specific personality traits: resilience, adaptability, entrepreneurship and the ability to deal with ambiguity. Scenario planning based on predictive analytics suggested that hiring for these traits would reduce annual voluntary turnover by at least 28 percent. When the company revised its selection process, it reduced turnover costs by $27 million over three years. During the same period, employee satisfaction rose by 41 percent and customer satisfaction by 52 percent.

Additional modeling helped predict performance ratings, which were in turn instrumental in creating a more equitable rewards structure. It also helped identify emerging talent for succession planning, resulting in improved retention. The result was an incremental, annual productivity gain of $1.7 million. Applying predictive HR analytics transformed an HR liability into a real asset.

While some people claim that analytics can be used to discriminate, the reality is that companies with the intent to discriminate will do so with or without predictive HR analysis. But the benefits outweigh potential risks.

Predictive analytics position HR as an equal partner within the business. For one thing, they drive evidence- based decision-making, thereby shifting the dialogue between HR and business leaders from one focused on cost to one focused on investment. For another, they create accountability for business performance. HR's success is no longer measured merely by the return on investment of HR programs. Rather, success is measured by HR's impact on business results.

The real beneficiaries, however, are employees. Predictive analytics enable more-effective development structures; harmonize performance management; lead to more-efficient and more-equitable rewards systems; and lay a strong foundation for talent identification, retention and succession. In short, they create an environment in which employees can be their best. …

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