4 Ways HR Analytics Help Small Businesses Make Data-Driven Decisions

HR Analytics help businesses generate insights and make data-driven decisions. The Blueprint explains the benefits of using HR Analytics, and the different ways small businesses can use them.

We may receive compensation from partners and advertisers whose products appear here. Compensation may impact where products are placed on our site, but editorial opinions, scores, and reviews are independent from, and never influenced by, any advertiser or partner.

Data has changed the HR department as we knew it.

Far from being known as the ‘personnel’ department, with its physical folders and paper employee records, technology has turned the modern HR department into one of the most data-reliant departments in the modern workplace. Data analytics, however, has taken longer to catch on.

HR analytics is often perceived as too advanced or complex for small businesses, while the assumed cost of HR analytics has also been a barrier in uptake.

Yet, HR analytics has become an integral part of successful human resource planning, by helping businesses gain a better understanding of their workforce and helping them make more impactful strategic decisions.

If you’re struggling to understand HR analytics, stick with us as we go through four ways it could make an impact on your small business and its strategic business objectives.

Overview: What is HR analytics?

Businesses use human resources analytics (HR analytics) to interpret and analyze HR data to aid decision-making, drive business value, and inform human resource management strategies.

While HR metrics track activity, such as employee turnover and time to hire, metrics alone don’t analyze this data to make meaningful deductions and identify any causal relationships.

For example, your average time to hire may be 45 days, but this figure alone doesn’t tell you how this length of time to hire is impacting the business.

HR analytics uses the results of HR metrics to determine what impact they are making on the business, and what’s causing them. So, when you consider your time to hire, instead of looking at the data in a silo, HR analytics looks at what’s causing the hiring process to take 45 days instead of 30.

Many HR software tools come packaged with HR analytics functionality, but the market has recently seen an increase in vendors offering dedicated and specialized analytics software.

Benefits of tracking your HR analytics

Tracking HR metrics is all but a worthless exercise if businesses don’t know what to do with the data. Every business should be tracking their key HR metrics, but HR analytics takes that data and transforms it into actionable, data-driven business insights.

Let’s take a look at a few of the ways that HR data analytics benefits businesses and decision-makers.

1. Optimization of people costs

Labor is by far your biggest cost, and HR analytics give you the ability to break your workforce costs down into granular detail so that you can better understand how your expenses can be optimized.

For example, HR analytics can help you ascertain if certain employee training activities are providing ROI or how overtime is affecting profit margins.

2. Provides a basis for business agility

A business’s success depends on its ability to adapt its people and processes during periods of uncertainty or change. Many HR software vendors offer predictive HR analytics tools, which allows decision-makers to access real-time data and insights.

Rather than trawling through historical records and data in order to make quick judgments and decisions, HR analytics can provide insight into “what if” scenarios, ensuring that businesses can deftly realign resources when necessary.

3. Future proofs the business

Wouldn’t it be great if you could forecast your staffing needs and budgets while protecting your business’s future? Many HR analytics tools can help you predict trends such as employee attrition, while others can predict what skills you’ll need based on trends and growth.

Using HR analytics means less guesswork, fewer surprises, and more forward planning.

How can HR Analytics help your small business?

These days, HR departments have more access to data than ever before, but many are still challenged by where to start or how to draw meaningful conclusions from it.

Let’s take a look at some of the areas where HR analytics can make a difference to your strategic business objectives.

1. Talent acquisition

Hiring and recruiting is a costly business: one bad hire could set you back $240,000 in expenses. Employee retention is also a challenge for businesses during periods of almost full employment.

Your business needs an informed talent acquisition and recruitment strategy in order to avoid bad hires and to save your business time and money.

During the recruitment and hiring process, several software systems are typically used, all of which gather candidate and eventual employee data. However, when it comes to using all of that data, many businesses struggle with how to link it all together.

HR and talent analytics help you get to the heart of how all of this data can help you strategize when it comes to hiring, recruiting, and retaining top talent.

How to use HR analytics to improve talent acquisition:

Before you get started, you’ll need to know what data you have and what kind of insights you want to glean from it.

  • Know what questions you want answered: When you’re just getting started with HR analytics, knowing where you want to begin is crucial. Whether you’re looking to find out what’s causing a high turnover rate, or find out what’s causing long hiring times, make sure you’re not overwhelming yourself with answers you don’t need.
  • Review your sources of data: Along with your Applicant Tracking System and information from employee satisfaction surveys, where else are you drawing essential people data from? Knowing this beforehand will help you select the right HR analytics solution for your business.

2. Performance management

Annual performance management reviews don’t reveal the whole picture about an employee’s overall performance. Often there are performance peaks and troughs, and almost always a reason behind them.

Traditional performance measures and performance improvement plans have been based on these annual reviews, without much extra context surrounding them.

HR analytics can help align the results of performance metrics with other patterns that might not be glaringly obvious. For example, a decline in a usually high-performing department may be due to the effects of a particular member of staff leaving the organization.

HR analytics can also show where there are dips in productivity over certain periods of the employee life cycle, which can help to surface inadequacies in training or development programs, and issues within employee management processes.

How to use HR analytics to improve performance management:

Performance management processes play a key role in ensuring that employees are producing quality work that helps to achieve business goals. Using the following tips, businesses can use HR analytics to help them improve their performance management processes.

  • Review your existing sources of employees: Check what data you have on your employees, and what systems you’re storing it in. This will range from performance data such as reviews, to absence records, and feedback records.
  • Always double check your data against your own knowledge: HR analytics can provide “red-flag warnings” on certain low-performance indicators like absence rates and lateness, but make sure this adds up with what you know about your employees as individuals. For example, an employee who has recently been sick might have a high absence rate, but you know their performance is in check.

3. Workforce planning

Many studies have shown that inadequate workforce planning leads to unmet business goals.

Using HR analytics in workforce planning, organizations can calculate how many employees will retire in one year, what kind of candidates would be needed to replace them, or whether at-will employment contracts are impacting turnover.

HR workforce analytics can help businesses analyze talent and skills gaps, solve persistent workforce planning issues, and uncover trends. It can also take into account potential future scenarios to deliver multiple potential planning solutions.

How to use HR analytics to improve workforce planning:

HR analytics can help organizations to address challenges or opportunities in workforce planning. Here are a few points to consider before you get started.

  • Decide on a time frame: How far back do you want to analyze your workforce data, and how far do you want to plan ahead? Consider any events that occurred that could skew the analysis.
  • Map your current workforce formation: This includes taking a good look at your current high performing employees and those with potential to be high performers to see how current individuals could be matched to future needs.

4. Employee engagement

Collecting employee engagement data is just as important as collecting customer data. Without it, you’re unable to use HR analytics to make links between engagement, productivity, wellbeing, and importantly, employee retention.

HR analytics combines people data with employee feedback and helps to determine how, what, and why people are doing what they do and how it’s affecting their performance and engagement.

How to use HR analytics to improve employee engagement:

Employee engagement data has a huge impact on being able to attain strategic business objectives. Here’s how to get started with employee engagement and HR analytics.

  • Start collecting information from employee pulse surveys: Pulse surveys are a great way of collecting real-time, actionable data that can really have an impact on business decisions. The results can also help decision-makers in helping to develop employee engagement techniques to boost and sustain morale.
  • Determine your key engagement KPIs: What KPIs are most important to measure and help you achieve your business goals? These could range from tenure, retention rates, to sickness rates.

HR analytics drive better business results

Many HR software tools have built in HR analytics functionality, so it's time for businesses to get familiar with them. Leaders need to encourage HR departments to be making the most of the reams of data they’re sitting on, and drive home the importance of human capital analytics in making strategic business decisions.

The Ultimate Guide to Building Virtual Teams

Knowing how to build a strong virtual team is more important today than ever -- and there are six critical things you must do to succeed. That's why we've created this ultra-timely 19-page report on what you should be doing now to set your virtual team up to win.

Enter your email below to access our (no-strings-attached) free report, "The Ultimate SMB Guide to Building High-Performing Virtual Teams."

The Motley Fool has a Disclosure Policy. The Author and/or The Motley Fool may have an interest in companies mentioned.