Human-resources executives have aspired to be strategic advisers to business leaders for at least a generation. But it’s been a struggle for many because it’s so difficult to measure the business value of HR approaches. Questions such as “What is the ROI1 of training?” and “Which screening techniques yield the best performing recruits?” or “What target-setting approach will best motivate performance?” have been met with imprecise answers. Today, however, new tools and methods for analyzing data enable HR to define the link between “people practices” and performance more effectively. This couldn’t have happened at a better time, since CEOs are hunting for value anywhere they can find it. The upshot: if you and your head of HR haven’t recently discussed ideas for using data to generate a talent strategy that’s more closely linked to business results, it’s time to start.

1. M A R C H 2 0 11
Keith Negley
o r g a n i z a t i o n p r a c t i c e
Question for your HR chief:
Are we using our ‘people data’
to create value?
Nora Gardner, Devin McGranahan, and William Wolf
By analyzing the links between people practices and productivity,
some companies are improving their bottom line.
Human-resources executives have best motivate performance?” have
aspired to be strategic advisers to been met with imprecise answers.
business leaders for at least a
generation. But it’s been a struggle Today, however, new tools and
for many because it’s so difficult to methods for analyzing data enable
measure the business value of HR to define the link between
HR approaches. Questions such as “people practices” and performance
“What is the ROI1 of training?” and more effectively. This couldn’t
“Which screening techniques yield have happened at a better time,
the best performing recruits?” since CEOs are hunting for value
or “What target-setting approach will anywhere they can find it. The

2. 2 March 2011
upshot: if you and your head of HR department stores in the United
haven’t recently discussed ideas States, for example, leveraged its
for using data to generate a talent data to identify attributes that
strategy that’s more closely linked made cosmetics sales reps succes-
to business results, it’s time to start. sful. Now it screens potential
reps using a test of cognitive ability,
Why now? For starters, the wide- situational judgment, initiative
spread adoption of enterprise taking, and other relevant traits.
resource planning and HR informa- Those who score in the top half tend
tion systems has made data on to sell 10 percent more product
business operations, performance, than the others and tend to like their
and personnel more accessible and work more. Since 2008, the chain
standardized. Furthermore, the has seen an increase of $1,400 in
rise of HR information systems has sales per representative and 25 per-
generated a community of soft- cent lower turnover among them.
ware and technology intermediaries
that can help HR and business Other pioneers are emerging, par-
executives use data to find links ticularly in industries where
between talent management people are central to value creation
and labor productivity. Finally, the (notably banking, health care,
consolidation and outsourcing of and retailing) and where scarce
transactional HR work has compel- technical expertise governs growth
led many leaders of the function (such as technology and upstream
to take a first step toward quantify- oil exploration). While the specific
ing and reporting HR costs and people-related practices that
performance. add value will differ by company—
industry dynamics, talent scar-
These trends, coupled with the city, growth rates, and corporate
universal imperative to get more for cultures all influence the answers—
less, have led some companies the organizations that we’ve
to discover new ways of using HR seen get the most value from invest-
analytics to create value. The ing in HR analytics all use some
Bon-Ton chain of more than 280 variation of these four steps.
The Bon-Ton chain of more than
280 department stores in the United States
leveraged its data to identify attributes
that made cosmetics sales reps successful.

3. Question for your HR chief: Are we using our ‘people data’ to create value? 3
1. Focus HR on business priorities
Most HR teams view, organize, and and business results. PNC’s team,
measure their activities through for example, asked line execu-
the traditional employee life cycle: tives what they saw as the highest-
starting with recruiting, hiring, value opportunities for improving
and “on-boarding” and proceeding talent management. From these dis-
to evaluation, training, and develop- cussions, the analytics team
ment. For HR analytics efforts distilled a top-20 list of business
to work, however, the function’s questions and hypotheses to
leaders must view problems— test, such as “What is the business
and value creation opportunities— impact of training investment?”
as business leaders do. and “Is there an optimal distribution
of performance ratings?” The
Executives at Pittsburgh-based PNC team then ranked the resulting
PNC Financial Services, for example, list of issues by their expected
suspected that their tendency business impact and the feasibility
to pick experienced outsiders over of conducting meaningful analysis.
internal candidates in hiring “This is where HR has the chance
decisions might be hurting the bank: to prove itself,” says Jay Wilkinson,
once hired, the outsiders were PNC’s new HR vice president of
too often viewed as lukewarm per- analytics. “Better than coming
formers. So in 2009, PNC’s HR team to [business leaders] with tired best
partnered with colleagues from practices, we’re asking them
the company’s marketing-analytics how they define success specific
group to analyze the sales per- to their business, and that provides
formance, over several years, of the context for our analysis and
external hires versus people recommendations.”
promoted from inside. What the
team found confirmed the Google is another company with
suspicions: in a number of key job an HR team that partners with
categories, internal candidates business leaders seeking analytic
were significantly more productive in insights. According to Prasad
their first year than experienced Setty, head of Google’s people
external hires. In subsequent years, analytics group, “We are looking to
the outsiders narrowed—but inform decision makers with data
never closed—the gap. Millions of so they can be as objective and bias
dollars in value were at stake. free as possible.” Setty’s team
has, for example, provided business
It’s unusual for business or HR executives with a systematic
leaders to spot pain points such as approach to reassessing provision-
these on their own. Typically, ally rejected candidates. The
a strong partnership is crucial for team’s analysis of profiles that lead
identifying and prioritizing issues to success at Google helps it
that intertwine people challenges identify potential false negatives
and to revisit these candidates. This
technique has helped the company
Listen to a podcast with Google’s Hal Varian—
“save” many hires it would otherwise
who describes how companies can convert
data into knowledge—in “Clouds, big data, and have missed.
smart assets: Ten tech-enabled business
trends to watch,” on mckinseyquarterly.com.

4. 4 March 2011
2. Start with what you have
Quantitative problem-solving analytics group. Other companies
skills may be hard to come by in the lean on finance or strategic
HR department. Therefore, planning. Most pull the necessary
senior executives who are eager to people into the HR function over
begin should push their HR leaders time, as PNC did in the course
to draw in analytical resources of a year when it decided to build
wherever they exist. All that’s a specialized HR analytics
required is the ability to engage department.
business leaders in efforts to identify
issues and structure problems And remember: many analyses can
in a nuanced way and then to follow be conducted using existing
through with advanced data data and systems. Some work may
gathering and statistical analysis. be needed to match payroll data
or training-attendance rosters with
Retailers, for example, typically sales performance results, for
entrust analytics to store operations example, but creative, persistent
analysts who understand the analysts can answer most busi-
high priority the business places on ness questions without new, sophis-
containing labor costs. PNC’s capa- ticated, or costly tools.
bility emerged from its marketing-
3. Go beyond traditional HR solutions
New insights often require additional of teams. We then conducted
problem solving to go from theory double-blind interviews to identify
to practical solutions. HR analytics the key behaviors exhibited by
succeeds when human-resources our best managers. We found eight
and business leaders work together behaviors that make a good
to address the root causes of manager and five pitfalls to avoid.
problems and to pilot new ways of These are now incorporated into
solving them. our manager-training programs and
coaching sessions, and teams
Google, for example, did a study provide feedback to managers on
to examine whether good man- these behaviors to help them
agers matter—and, if so, how—within understand where they’re doing well
Google’s specific culture. Setty and where they can get better.
explains that “through various The vast majority of our lower-rated
methods, we found positive relation- managers have improved as
ships between good management a result.”
and retention and the performance

5. Question for your HR chief: Are we using our ‘people data’ to create value? 5
4. Make it stick
Once a company has a few succes- success. At financial-services giant
ses with HR analytics, it can build ING, for example, business units
a lasting source of value creation by and HR share a comprehensive dash-
integrating analytics practitioners board, supplemented by regular
into its day-to-day business and HR reports, to show progress on key
rhythms. Several companies, metrics. Similarly, a global oil
for example, have established a giant’s people-strategy group reports
routine of having HR or other progress at four stages of a
“people strategy” staff join business project’s development: data gather-
reviews to identify priorities for ing, analysis, developing solutions,
analysis. This practice helps senior and piloting. This approach helps
line executives conduct problem- HR and business leaders under-
solving discussions around stand that progress is happening
HR-related issues and to plan for even when stages may take
action as findings emerge. weeks or months to complete. It also
provides a clearer understand-
HR analytics practitioners must ing, in both directions, of changing
also commit themselves to the habit priorities and emerging findings
of measuring and reporting on from the work.
Advances in technology are creating Nora Gardner is an associate
opportunities for senior business principal in McKinsey’s Washington,
and HR leaders to start a new kind DC, office, of which William Wolf
of dialogue about the link between is an alumnus; Devin
people and performance. That McGranahan is a director in the
dialogue will help HR executives Pittsburgh office.
demonstrate the impact of
their work and achieve their goal of Copyright © 2011 McKinsey & Company.
strategic partnership with other All rights reserved. We welcome your
members of the senior-management comments on this article. Please send them
to quarterly_comments@mckinsey.com.
team—and, of course, it will create
value for the enterprise.
1
Return on investment.