Why Companies Rely on Data-Driven Human Resources
Elevating the human resource function with SAP’s Unified Data and Analytics portfolio
It is paradoxical: There is broad consensus on HR being one of the most significant success factors of businesses: it attracts, develops, and retains the best people. Nevertheless, the analytical capabilities of HR lag compared with other corporate functions. But can HR work well without digitalization? According to a recent study by McKinsey & Company, 87 percent of managers say that they are experiencing skill gaps or expect them within a few years. One of the solutions to discover and fill these gaps is to improve HR capabilities using analytical tools.
But why does HR lag in digitalization? A fundamental reason is that HR struggles to measure and report how it specifically affects the bottom line. Retaining employees saves costs – but to what degree? Developing and future-proofing personnel enhances performance – but to what extent? Only with sophisticated analytical capabilities HR can shed a light on its own business impact and further advance it.
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Elevate HR to be Data-Driven Now
The first companies equipping their HR with analytics will close the skill gap and have a substantial competitive advantage.
Let’s look at some of the challenges that hinder HR to live up to its fullest potential when dealing with data:
- Underutilized data. Most of the time, the problem is not shortage of data but abundance of data. There is no clear idea on how to extract value and insights out of data – whether it is because of missing tools or missing data strategy. Additionally, data quality cannot be assured and, thus, prevents people from trusting their databases instead of gut feelings.
- Missing data strategy. Lacking data strategy can result in scattered data sources instead of having a single-point-of-truth. Hence, HR data lacks trust and people ultimately avoid grounding decision-making on data. Another aspect is that there is an insufficient harmonization of people data with other operational data – like finance or spend management. Gaining a complete end-to-end perspective on one’s workforce requires to incorporate data from across the enterprise but also from external sources – which is even harder.
- Lack of intelligent capabilities. HR managers face limited possibilities to deploy predictive functionalities, planning scenarios, and other augmented analytics to their business cases. What are the main drivers for the lack of applications and how can we revert this trend? Deploying such analytical use cases is most of the times an expensive and long-lasting endeavor.
- Heavy reliance on IT: Data management and analytics are often driven by IT. HR relies on the IT department to enable analytical use cases as data and analytics software is hard to use for business users. HR is depended on IT and unable to independently pursue its own data goals. Hence, HR struggles to become data-driven and pursue more ambitious goals.
These four challenges prevent HR from becoming truly data-driven. But how do these problems translate into the everyday work of HR?
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Adverse Impacts of Data Challenges on HR
Common data-related problems in HR are omnipresent: Data is scattered across multiple sources. To report or analyze data, employees must either manually find and gather data or reach out to IT to provide them with access to data which often takes weeks, or even months. All in all, data is hard to consume and gets ignored.
The absence of data analytics results in HR’s incomplete picture of the company’s workforce and inability to be proactive.
The risks companies take due to missing out on data-driven HR are striking. Let’s take a detailed look at some use cases of HR and the consequences of the outlined data struggles.
Recruiters, for example, lose the best candidates to competitors whose hiring is more data-based and who continuously improve their hiring based on measurable results. Regarding hiring channels, most of the time HR does not know which channels are effective at attracting qualified candidates. Is it via LinkedIn or Google? Or do Instagram advertisements have the best return to fill a specific vacancy? There is no transparency on each tool’s return on investment and all relevant information is scattered across different dashboards. Consequently, the overall marketing activities of recruiters might turn out to be less efficient and waste lots of capital.
Employee retention might suffer from a lack of insights into why talents are leaving and not knowing how to ensure top talent staying in your company. Is it due to one competitor opening a new office nearby? Or because of uncompetitive salaries – and what salary should be offered?
Low retention rates have a direct adverse impact on business performance and financial success. Turnover can cost up to 1.5x of the departing employee’s salary! Again, the reason is a lack of data transparency.
The learning & development side of HR has no insight into the direct results of introduced trainings. Judging whether programs are useful and to what extent mostly relies on gut feelings. Moreover, the selection of suitable trainings demands an objective analysis of prevalent skill gaps. Without definite data, evaluating the return of learning and reporting to the business is close to impossible. To sum up, HR does not have an exact knowledge on a) what the most urgent skill gaps are, b) what the best training would be, and c) how the conducted programs objectively impact business performance.
An additional, overarching difficulty is that to gain a holistic view of HR and its drivers, analyses must also incorporate non-people data like internal operational data and data from external vendors.
Yet, such analyses are rarely affordable and out-of-budget as it requires lots of effort from IT or even own dedicated projects to set up all internal and external connections. Most companies do not have the know-how or simply not the budget allocation to pursue such initiatives.
But still there is no getting around it: To extract most value out of data, companies must bite the bullet and harmonize HR data with every other data point.
How SAP Data Warehouse Cloud turbocharges the data evolution of HR.
With SAP Data Warehouse Cloud it is easy to become data-driven. Combining database, data management, and modeling capabilities in one single-source-of-truth, the features of SAP Data Warehouse Cloud go beyond classic data warehousing.
The benefits of Data Warehouse Cloud can be divided into three main categories:
1. Connect data
SAP Data Warehouse Cloud instantly connects to SAP sources with native out-of-the-box connections and immediately understands the business context of the data.
Connecting to non-SAP sources is also easy. Its open connectivity and new features like the Data Marketplace help to connect to external data, such as Google Ads, LinkedIn data in a matter of clicks – not projects. Thus, the time of data silos is over.
2. Unlock insights
Empowering business users to perform self-service analyses. SAP Data Warehouse Cloud provides a business layer that allows everyone to work with data in business terms and to create models easily without IT knowledge. Dedicated virtual work environments in SAP Data Warehouse Cloud – Spaces – ensure that teams are working in a governed zone of trust guaranteeing adherence to data privacy and well-structured access rights.
3. Accelerate decisions
Pre-integrated models can be directly implemented without any further adjustments. To further accelerate outcomes, SAP Data Warehouse Cloud includes pre-defined business content packages for a variety of use cases and the already mentioned Data Marketplace that makes connecting to external data a hassle-free. Use cases are no longer just possible but realizable.
Although these features already allude to the possibilities for HR, let’s shed a light on how HR benefits. For that, let’s compare data-driven HR with legacy HR functions that operate solely on gut feelings.
Elevate HR to new Spheres.
The benefits of SAP Data Warehouse Cloud for HR are so striking that it is crucial to understand the evolution HR goes through when becoming data-driven.
1. No Analytics in HR function
No data, no tools available or used. The business lacks ERP and people software like SuccessFactors.
Decision-making based on gut feelings only.
2. People Analytics
Only people analytics available and could potentially be used in the decision-making process
The HR function is somewhat digitally transformed and has analytics tools such as SAP Analytics Cloud at hand but does not really have a strategy on what to do à underutilized data, missing data strategy, lack of advanced analytics. HR does not leverage SAP Data Warehouse Cloud and instead manages silos of data sources and excel sheets. Data is not trustworthy. IT is needed to create analytics use cases.
3. Workforce Analytics
Decision-making based on people and operational finance, and spend data
Aimed at HR business users with a strong need for data transformation support, Workforce Analytics enables users to put HR analytics-first strategy when the existing enterprise analytics is siloed but integrating HXM Analytics is a driving force. Data can be integrated from a range of sources, including SAP SuccessFactors and People-centric third-party applications, with 2000+ predefined metrics to deliver fast time-to-value and flexibility.
4. HR in the Intelligent Enterprise
Incorporating relevant internal people and operational data but also external data into analyses. Holistic view not only on the business itself but also its surroundings.HR further leverages SAP Data Warehouse Cloud’s Data Marketplace and its open connectivity to create a single-source-of-truth for all relevant information. The analyses and its results are not only used in HR but also highly valuable and relevant to other departments.
The last stage of HR depicted above is what data-driven HR strives for. An HR function that is like stages two and three grounding decision-making on data. But in contrast to the lower stages, the fourth stage leverages all people, operational, and external data.
What All-Data HR specifically means for recruitment, employee retention, and learning & development
Regarding recruitment, SAP Data Warehouse Cloud can, for example, help improve marketing efforts. Using the Data Marketplace, it connects to various live data sources like LinkedIn in few clicks. Recruiters gain insight into the effectiveness of their hiring channels (defined as number of hires divided by total number of qualified applicants per channel) by tapping into LinkedIn, Google Ads, Facebook and Instagram ads, and your internally used recruitment software like SuccessFactors. As performance of all your hiring channels and their effectiveness become transparent, capital can be focused into the most successful hiring channels.
There is a new idea for promising KPIs that shall be tested? No problem. With SAP Data Warehouse Cloud, recruiters are – in a self-service manner – able to create and experiment with their own KPIs without required knowledge on databases or any help from IT. SAP’s business semantics allows to work with data in everyday language rather than technical IDs.
Adding to all that, recruiters can track the performance of all their ads in one single dashboard with a tight integration between SAP Data Warehouse Cloud and SAP Analytics Cloud. There is no more need for multiple dashboards and scattered information.
Learn more: Why Data Visualization is Now Essential for HR
With the pre-built business package from Windhoff that is specifically tailored to channel effectiveness, most of the work to creating a dashboard to track the performance of recruitment channels is already done.
With SAP Data Warehouse Cloud, employee retention becomes proactive. When calculating the risk of specific employees leaving your company, it is now possible to include external data on competitors opening new vacancies or offices nearby by tapping into data from LinkedIn via Adverity. This knowledge could help you proactively provide your employees with additional incentives to stay within your company before they even think about leaving. This ultimately saves turnover costs.
In such a retention analysis, integrating data from SAP SuccessFactors to calculate flight risks (probability of leaving for each employee) is just as easy.
But when combining the information from SAP SuccessFactors with external data from LinkedIn, SAP Data Warehouse Cloud’s simple connectivity comes to shine. Instead of separately analyzing and visualizing data, it all comes together in one single dashboard – even in the same one as the recruitment dashboard mentioned above!
Talking about learning and development, SAP Data Warehouse Cloud can give direct insight into the effects of trainings on business performance as people data and other finance data is easily combined into one analysis. Identify training needs and trends, predict the readiness of each employee to capitalize on learning opportunities or take on new projects, and align training and learning opportunities accordingly. Measure the success of trainings by including employee engagement data into your learning analysis and dashboard: increase satisfaction and reduce attrition.
HR benefits from SAP Data Warehouse Cloud as it is equipped with intelligent capabilities to empowers business users to unlock their full potential due to the interface’s ease-of-use, and shortens time spent on setting up complex system landscapes, and harmonize data from multiple sources, allowing business users to perform sophisticated analyses when combined with SAP Analytics Cloud. SAP Data Warehouse Cloud is the singe-source-of-truth absorbing all data from inside and outside – a perfect match for HR striving to becoming data-driven!
What’s your opinion on and experience in making HR data-driven? Please feel free to leave a comment here and join our conversation on Data Warehouse Cloud in the SAP Community.
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The author would like to thank Stefan Schares for the collaboration on this topic and his contributions to this article.