How to be great at people analytics

Here is an excerpt from an article written by Elizabeth Ledet, Keith McNulty, and Marissa Shandell for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out others, learn more about the firm, and sign up for email alerts, please click here.

* * *

Advanced analytics is transforming the HR landscape. Interviews with leading people analytics teams reveal how.
A decade ago, someone touting the benefits of “people analytics” probably would have been met with blank stares. Was there value to be gleaned from HR data? Absolutely. But firms were thinking more narrowly about the potential—focusing on core HR systems and gathering straightforward information, such as snapshots of regional head counts or the year’s average performance evaluation rating, rather than using analytics capabilities to manage talent and make evidence-based people decisions.Today, however, the majority of large organizations have people analytics teams,  70 percent of company executives cite people analytics as a top priority, and there’s little argument that people analytics is a discipline that’s here to stay. What’s striking, though, is the different ways that firms have approached building their people analytics functions. Team size, composition, and organization vary widely, and priorities for capability development and maturation differ significantly.
Most companies still face critical obstacles in the early stages of building their people analytics capabilities, preventing real progress. The majority of teams are still in the early stages of cleaning data and streamlining reporting. Interest in better data management and HR technologies has been intensive, but most companies would agree that they have a long way to go.Leaders at many organizations acknowledge that what they call their “analytics” is really basic reporting with little lasting impact. For example, a majority of North American CEOs indicated in a poll that their organizations lack the ability to embed data analytics in day-to-day HR processes consistently and to use analytics’ predictive power to propel better decision making.  This challenge is compounded by the crowded and fragmented landscape of HR technology, which few organizations know how to navigate.
So, while the majority of people analytics teams are still taking baby steps, what does it mean to be great at people analytics? We spoke with 12 people analytics teams from some of the largest global organizations in various sectors—technology, financial services, healthcare, and consumer goods—to try to understand what teams are doing, the impact they are having, and how they are doing it.

Stairway to impact

It helps to think about the growth trajectory of a people analytics team as a stairway with five steps (Exhibit 1). The best teams don’t climb directly from one step to the next one; they are constantly iterating—retracing their steps and climbing the same stairs again—at every level of the journey to the top.

To move from the first step of the stairway (poor data) to the second step (good data), an organization must focus on building a foundation of high-quality data. This usually means that data needs to be extracted from the transactional systems where it is entered and then reshaped, cleaned, and re-coded into a more manageable and easier-to-understand structure that is aligned to the goals of the people analytics team. The more that analysts and data scientists need to clean and recode data to make it usable for even simple analysis, the less efficient the analytics team will be and the longer it will take to develop its skills and capabilities. This is arguably the most difficult step to get right. Significant resources, time, and investment are required to identify and manage core HR data systems, establish a common language and consistent data structure, and determine a basic set of guidelines for data collection, processing, and engineering. These are iterative processes, with no definitive solutions; rather, the processes and their outcomes change as the internal and external talent environments shift, systems are retired and renewed, and links are established among HR teams such as recruiting, training and development, and employee benefits.

As the operating environment changes at an increasingly rapid pace, both capabilities and the technology used to manage and transform data need to be increasingly flexible. In people analytics, as in many other tech-enabled fields, taking an agile approach is now a fundamental requirement. People analytics teams must work together with their enterprise-wide technology groups in a rapid and nimble way to institute new technology platforms, evolve existing infrastructure, and maintain consistent enterprise-wide standards.

Once a strong data foundation is in place, the people analytics team can climb to the third step, making the useful data accessible to the organization and experimenting with new technologies to analyze and disseminate the data. The sophistication that organizations are able to achieve at this step is variable. At the simplest end of the spectrum, teams might focus on automating and visualizing HR dashboards via standard business-intelligence platforms such as Tableau, in order to generate standard reports or respond to ad hoc requests. More advanced teams might prioritize custom builds and software development for self-serve applications, perhaps using their own front-end developers.

It’s evident from our interviews that organizations arrive in different ways at the ability to put data and actionable insights into the hands of decision makers. At several points, organizations must make decisions related to technologies and platforms—decisions such as whether to use homegrown talent or third-party vendors—and the answers vary by organization. As one would expect, the ability to attain advanced automation and self-serve capabilities depends greatly on the quality and accessibility of the underlying data.

Teams that mastered descriptive and automated reporting at step three are ready to climb to step four and build advanced-analytics capabilities. Data scientists, rather than business-information specialists, use programming languages like R, Python, and Julia to join disparate sources of data, build models to help understand complex phenomena, and provide actionable recommendations to leaders making complex and strategic business decisions.

We spoke to people analytics teams at a handful of organizations that are experimenting heavily at this level of the stairway and still have significant room to grow as their companies become open to new statistical tools, scale their data-science talent bench, and pursue a wide range of use cases. While some companies employ “broad-spectrum” data scientists who work cross-functionally to support a wide range of business needs, we found that the most advanced teams have created specific subspecialties in data science (for example, natural-language processing, network analytics, and quantitative psychometrics). These allow people analytics teams to increase their impact on their organizations by providing the advanced insights necessary to support strategic decision making on diverse and complex types of talent issues.

No people analytics team we interviewed has been able to take a full fifth step to reach the top level of the stairway: creating reliable, consistent, and valid predictive analytics. Reliable predictions will enable people analytics teams to analyze and explore practical options for management action. While some organizations have built fit-for-purpose predictive models—mostly for workforce planning—implementing predictive analytics in the context of employee selection, development, or engagement decisions requires a substantially scaled-up data-science operation, massive amounts of highly accurate data (“very big data”), cutting-edge algorithmic technology, and organizational comfort with how to address the impact on fairness and bias.

Beyond the required resources and the complexity of the analytics techniques, the infrastructure also poses a challenge to scalability and could require the use of cloud services. Most of the teams we spoke with are still working from on-premise technological infrastructures and show few signs of migrating their data and analytics capabilities to cloud services in the near future.

Ingredients for success

Our conversations with people analytics teams in leading organizations reveal a set of six best-in-class ingredients that have helped to propel the teams’ impact, success, and continued growth. These ingredients fall into three main categories: data and data management, analytics capabilities, and operating models. If we were to build a leading people analytics team from scratch, this is what we would strive for.

* * *

Here is a direct link to the complete article.

Elizabeth Ledet is a partner in McKinsey’s Atlanta office; Keith McNulty is a director, people analytics and measurement, in the London office; Daniel Morales is a director of analytics in the Washington, DC, office; and Marissa Shandell is an alumna of the New York office.

Posted in

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.