HR departments have 68 per cent greater impact on customer value when they play a major role in architecting the firm’s information value chain than when they apply HR analytics, writes Wayne Brockbank
During the last decade, HR analytics have received increasing attention. A dozen or so books and several dozen magazine articles, blogs and websites prescribe how HR can better apply information logic to itself. The assumption is that applying analytical techniques to HR information enables HR to create value for organisation. Receiving much less attention is HR’s role in designing the total flow of important information throughout the firm’s information value chain.
With more than 31,000 participants from the around the world, the 2016 round of the Human Resource Competency Study from the University of Michigan and the RBL Group provides illumination on this issue. We found that when HR plays a major role in the firm’s information architecture, it has 27 per cent greater influence on short-term business results than when it applies information analytics to itself.
Furthermore, when it does so, it has 56 per cent greater influence in creating shareholder value. And most dramatically it has 68 per cent greater influence in creating value for external customers. It should also be noted that HR departments do neither very well (i.e. 3.49 out of 5.0 for firm-wide information architecture and 3.52 out of 5.0 for HR analytics).
“The assumption is that applying analytical techniques to HR information enables HR to create value for organisation”
The HR field is generally aware of the logic of HR’s application of informational analytics to itself. This familiar application of analytics to HR is traditionally broken down into four categories: institutional metrics (e.g. number of employees, number of training hours, costs of benefits), efficiency (e.g. cost per hire, HR expenses per employee, per of employees receiving performance reviews), effectiveness (e.g. high potential retention rate, impact of training on individual participant performance, sales increase from a new evaluation system), and initiatives (e.g. timeliness of HR restructuring, implementation of new communication protocol, timeliness in achieving diversity numbers). These are the standard fodder of HR applying information logic to itself.
More important is HR’s role in architecting the firm’s information value chain. An organisation’s information value chain consists of the following.
- Identifying and amplifying the firm’s most important external information as Eli Lilly does as it accesses global intellectual capital through its pioneering work with Innocentive.com.
- Importing important information into the firm in a timely and accurate manner as Unilever does by having its management trainees live in remote villages for months at a time to learn and appreciate the lifestyle of their future customers.
- Applying quantitative and social algorithms to the analysis of information such as GE does in its Internet of Things strategy which is facilitated by upskilling its workforce and by providing intense decision-making forums that analyse information and move to action thereby seamlessly connecting GE’s services to its customers.
- Sharing information across both vertical and horizontal boundaries thereby making the information whole greater than the sum of the parts such as is done by Pfizer as it moves information across divisions to formulate new molecular combinations.
- Leveraging information for decision making and action such as is done by Goldman Sachs as it provides extensive information up, down and across the organisation which employees leverage to create value for customers and shareholders.
“When HR plays a major role in the firm’s information architecture, it has 27 per cent greater influence on short term business results than when it applies information analytics to itself”
By assisting their firms in architecting the flow and utilisation of information, HR departments can substantially enhance their value to firm performance, shareholders and customers. It can do so by applying information logic to the entire organisation and not merely to itself.
Action items for HR
- Engage your senior leaders in the importance of information as competitive advantage.
- Know the most important information that is required for your firm to have a competitive advantage through information.
- Conduct a diagnosis about what portion of the information value chain is most important for your firm’s success and needs the most improvement.
- Take actions to make the requisite improvement with the involvement of key stakeholders.
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