People analytics is an increasingly popular approach to human resources management. According to the Wharton People Analytics Conference website, it is "a data-driven approach to managing people at work." People analytics involves the use of both data and analysis in recruiting, hiring, promotion, leadership, performance evaluation, compensation, and other people-oriented processes.
Wanting to learn more about this new discipline and its increasing popularity, we met with people analytics thought leader Lisa Donchak, of the Wharton School.
Enriching the decision-making process
According to Donchak, managing people at work has traditionally been a subjective process. "A lot of times, decisions that affect hiring, employee retention, and attrition are made with a gut feeling. Those gut instincts aren't something to be discarded, but people analytics is able to provide an additional, objective way of looking at the whole process," she explained.
For example, a hiring manager may instinctively feel that an applicant would be a good cultural fit. People analytics and its research-based approach can provide that manager with additional information to help guide hiring decisions toward the most effective outcome.
In some ways, this new development is similar to that of marketing, which evolved from a gut-focused endeavor where marketers guessed what consumers wanted to a more effective data-driven model.
Fears and misconceptions
As an emerging field, people analytics has its share of naysayers. Donchak explained that some resist implementing a data-driven management approach due to fears about the robotic side taking over the process completely.
"There's fear that machines will be making hiring decisions," she said. "What if they make a mistake on a grand scale?"
In reality, though, people analytics is an evolution of the process, not a replacement for it.
Others have concerns about privacy. Donchak explained that with or without data, it's easy to cross the line. Human resources have long been subject to strict privacy requirements such as what types of questions you can and can't ask, and data doesn't necessarily change the course of that conversation.
"Ultimately talent management is a human task — the best managers relate to their team in a meaningful and human way that makes them feel valued," Donchak said. "Organizations who try to manage strictly based on data will run into problems."
Benefits for employees and job candidates
People analytics addresses a lurking fear many job applicants share: a candidate who is better connected getting accepted over them. Using a data-driven approach improves everyone's chance of getting in based on their own merits, rather than who they know.
"What people analytics can do is make the hiring and team-building processes more fair," Donchak explained. "From an applicant's perspective, I feel like I've got a shot, even if I don't know the HR manager personally. It's going to be a much more fair way of looking at the pool of applicants that will focus in on the traits that team cares about."
People analytics and small businesses
Small businesses may not be able to leverage people analytics in the same ways larger businesses can due to their smaller sample sizes, and the impact new hires have on small organizations.
"For smaller businesses, it can be hard because every decision is very important," she said. "If you're a five-person company and hiring a sixth person, that's a 20 percent increase in headcount."
At the same time, small businesses have the largest potential upside to benefit from the people analytics research being generated by larger companies.
Donchak discussed Startup Genome as an example of the benefits big data has in store for small businesses.
Startup Genome examined several hundred startups, picked criteria, and compared the traits of successful and not successful startups. This analysis helped to determine success factors such as the optimal number of co-founders (which is between two and four; if you have too many, it's like having too many cooks in the kitchen; if you have just one, then the startup is more likely to fizzle out).
Shared outcomes of people analytics research can result in actionable insights for small companies, helping business owners determine early strategies.
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Why people analytics is taking off
Donchak said that people analytics evolved from a handful of early pioneers facing a massive headwind, to a community of practitioners. Interest has exploded — people really want to do this. Since the launch of the first People Analytics Conference, two or three more have sprung up in the space of 18 months.
What's driving this interest?
Donchak explained that there's simply more acceptance that data can help make hiring decisions, even in comparison to a couple of years ago. In general, there's more acceptance about data being able to help make business decisions in spaces outside of HR. Using data in the HR space is a logical progression.
Many business leaders have access to an unprecedented amount of data, but they're not quite sure what to do with it. "The biggest component of this excitement is the fact that the data finally exists; if it doesn't exist, there are methods of collecting it in bulk," Donchak said. "Even 15-20 years ago, there were very few institutions rigorously collecting this data about anything, much less about their employees or who they might want to hire."
Contemporary computer technology provides storage options that make the data easily accessible and new tools to make it easier to work with.
The future of people analytics
With interest running strong, the future for people analytics is bright. Donchak predicted that over time, some people management truths will emerge that will be accurate about 90 to 95 percent of the time.
"As we continue to do research, we'll find out what those truths are," she said. "Many of those truths will be very low-hanging fruit that companies can deploy easily."
As these truths are discovered and shared, other businesses will benefit — even if they are not conducting their own people analytics research.
Basic people analytics strategies to implement today
Donchak is passionate about people analytics, and it's infectious. We're excited about it too, and eager to tap into its potential. Her advice on implementation: Start now, and fail fast.
Otherwise, you're going to get left behind. If you do nothing else, start collecting the data, or you won't have anything to work from later. Many organizations are already doing this, and they're going to be killing it in recruiting a few years from now. Remember, the decision is reversible. If you don't use the data, no problem.
Be comfortable with the fact that you're going to make mistakes. It's OK to be wrong. In fact, it's expected due to the scientific nature of this approach. By failing fast, you can discover unforeseen issues quickly and change course accordingly.
Finally, remember that people analytics is not a tool to replace human decision; it's there to complement human decision with access to powerful datasets.