I am not schooled in Human Resources. I am not an expert in analytics. I almost certainly could not do the job of a Chief Financial Officer. However, when I agreed to accept responsibility for getting HC Moneyball into the hands of CFOs, I came to understand the difference between the data related to individual workers or groups and data related to Human Capital as an enterprise investment.
The goal of this post is to distinguish these similar and complementary terms and to establish a context for their consistent use. Regardless of current interchangeable uses of the two terms by huge consulting firms, sole proprietors and enterprises of all sizes, they are simply NOT the same.
First, the conclusion: People Analytics (PA) is all about measuring individuals and groups (for example, a salesperson and the sales organization) against standards and KPIs established by the HR department. Human Capital Analytics (HCA) is all about shining a spotlight on any impact that can be measured where the cash spent on people in the organization has impacted bottom-line financial performance.
What the conclusion suggests: Here’s an example: Imagine the labor market is very tight and the HR department is having a tough time filling all the open sales roles. In that scenario, PA will show the hiring results deficit against the targeted number of hires. However, HR has been doing such a good job of hiring high-quality salespeople that their hires stay longer than expected, have a higher than usual result in achieving quotas, and they tend to sell the most profitable offerings of the firm.
Again, in this example, PA would show the deficit in hiring AND the positive impact on turnover, AND the increased percentage of sales employees who achieve quota. But, PA is not intended or designed to measure the impact on profits. How could we learn about that? Ideally, by installing an analytics methodology and tool built to measure that very thing. At a minimum it would highlight the correlation between money spent on hiring salespeople and an increase in profits (ROI, EBITDA, etc.) Upon seeing the correlation, the CFO would be prompted to say to the CHRO: “Since March of this year your hires in sales have had a direct positive correlation to increased profitability – please figure out what you did differently and do more of it.”
The Key Differences:
People Analytics (PA) is an important tool of Human Resources professionals. PA allows for quantitative measures of the results of individual or group performance against agreed-upon goals (read: KPIs); and/or of the success of a specific program against the HR department goals. If you are responsible for finding, hiring, training, compensating, rewarding, advancing, acknowledging, and in other ways making life joyful, satisfying, and productive for your employees, you must use analytics to analyze and evaluate your people and the programs you create for them.
Human Capital Analytics (HCA) is an important tool for senior financial executives – especially the CFO. HCA represents a technique for evaluating the aggregate performance of your total spend on people by comparing the dollars spent to a corresponding increase or decrease in the company’s bottom line (read: ROI). That total spend includes, for example, advertising to fill jobs, recruitment, interviewing, offers, salaries, bonuses, cost of freelancers and consultants (yes, they are people too), benefits, training, acknowledgement events, retirement contributions, and much more. You get the idea, right? We can and should use PA to look at how HR choices impact the HR function and employees. HCA lets us see how those choices impact company-wide profitability.
WHAT PEOPLE ANALYTICS and HUMAN CAPITAL ANALYTICS MEASURE
Performance of individual people and selected groups
Success of people in achieving HR-defined goals and KPIs
The performance of specific HR programs (recruiting, training, etc.) in achieving HR goals
HUMAN CAPITAL ANALYTICS
Cash spent on people and on people-related programs
Impact of cash spent on overall company profits (ROI)
Performance of specific HR programs (recruiting, training, etc.) as a contribution to bottom-line profitability
If I have encouraged you to make certain you are running both PA and HCA in your firm, there is a clear case for the resulting power of a new cooperative teamwork between Human Resources and Finance.
- The CHRO is an expert in the delicate art of people skills and is probably not trained in Financials and/or Analytics.
- The CFO is an expert in finance who most likely doesn’t “get” the delicate art of people skills. In addition, the CFO is probably not trained in HR program design, execution or management.
- The POTENTIAL NEW PARTNERSHIP: By simultaneously measuring PA and HC performance, the CHRO and the CFO now have a language they both understand that will allow them to communicate about the value of budget spent on HR programs, tasks and people.
- Please let us all know if you agree or disagree by leaving a reply below.
Selected reference links – pro, con, and neutral:
- HC Moneyball: www.hcmoneyball.com
- AIHR Blog: What is HR analytics? (also called People Analytics)
- OPM.GOV: How to Identify and Use Human Capital Analytics
- McKinsey Podcast: Why you should apply analytics to your people strategy
- Accenture: Inform Through Analytics
About Joseph Olewitz – Joseph is the Chief Revenue Officer for HC Moneyball and the founder of Virtual Chief Revenue Officer (V-CRO), a business he created to support entrepreneurs and executives responsible for increasing services revenue in any size business.
For over 25 years, Joseph was responsible for revenue growth at major global digital agencies selling services to global brands. Before becoming a consultant dedicated to the practice of Intentional Revenue Growth, he was an executive-level leader on the global management teams at USWeb/CKS, marchFIRST, and Digitas/LBi.
Throughout his career, Joseph has been on the leading edge of introducing and adopting innovative digital platforms. He received a certificate in Blockchain strategy from Oxford University and has been involved in many new business technologies including, but not limited to, the first retail application of RFID in 2007, and Human Capital analytics today. In the past two years he has also hosted and moderated briefing events for C-level executives in artificial intelligence and blockchain. He writes extensively about building long-term, trusted advisor relationships, finding new growth and disruptive technology opportunities, and closing new business. He is a coach and mentor to CEOs and entrepreneurs and speaks frequently inside corporations and at public and private industry events. He is a member of the Mentor Panel for startups at Amsterdam-based nonprofit DutchBasecamp, and has served on the advisory boards of several nonprofit institutions and digital startups.
Agree, both are critical. I’m thrilled to know that there now exists a method for businesses to be aware of the full contribution of human capital. When not optimal, this awareness can (should) prompt new steps be taken toward optimization. I believe enabling peoples’ full potential is the key to business sustainability. I look forward to identifying opportunities to demonstrate this potential.
It’s nice to hear such a well-formulated opinion about the benefits of understanding the impact of Human Capital on the bottom line, and I’m looking forward to hearing about what you find.