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Insourcing or Outsourcing Workforce Analytics

HRM professionals increasingly recognize the promise of workforce analytics to improve people planning, ground managerial decisions in evidence, and link HRM practices with customer value creation. Yet, while these benefits are generally acknowledged, many organizations struggle to build and deploy these capabilities. A key question is whether to insource or outsource workforce analytics capabilities.

Insourcing analytics offers several advantages. For example, a dedicated workforce analytics team can readily integrate existing data across functional areas, coordinate with third-party consultants and training providers, and handle proprietary or sensitive data. Insourced analytics teams can also quickly build trust with the workforce as a function of their shared identities and goals. Finally, insourcing workforce analytics also sends important signals throughout the organization regarding the functional importance of HRM.

However, in spite of these advantages, the business case for insourcing isn’t so favorable for other organizations. First, experienced workforce analytics professionals are comparatively scarce, salaries can be prohibitively expensive, and it takes time to build viable teams. Organizations also bear the ongoing employment costs of retaining these teams, meaning this capability will consume scarce financial and managerial resources. Other organizations may have a difficult time providing enough work to justify these investments, particularly if these organizations don’t utilize HR information systems that provide needed data. Next, many organizations aren’t large enough to justify the cost. Finally, many organizations don’t need long-term analytics support, but prefer to utilize project-based analytics in support of workforce development initiatives.

For these organizations, it may make more sense to outsource workforce analytics.

This begs the question of where organizations should turn when choosing a provider. One key is to avoid agency dilemmas that can arise when we ask training and development consultants to also provide analytics support. This results in an ethical conundrum where providers must fight the temptation to misrepresent or withhold findings that would cast their programs in a negative light, meaning organizations won’t get the transparent and unbiased results they need.

Similarly, many analytics companies offer HRIS software that can help with analytics. Although such programs have significant value, they also require significant and ongoing investments. Such analytics software also “tethers” the organization to the provider on an ongoing basis, limiting future flexibility.

Finally, there are a great many analytics companies, but very few analytics companies with knowledge of best practices and expertise in human resource management. As a result, companies retaining these providers often cannot gain valuable insights into “data gaps” and evidence-based prescriptions that derive from their analyses, and do so at their own peril. It’s akin to acquiring x-ray equipment without hiring a radiologist to interpret the results. Thus, organizations should be wary of providers who excel at analytics, but lack the expertise to help organizations make sense out of their data.

In sum, insourcing is a viable path for many organizations to develop needed workforce analytics. However, for other organizations, outsourcing can provide comparable capabilities at a reduced cost. Finally, some companies will pursue a “blended” strategy where they outsource workforce analytics while building internal capabilities.

For companies that choose to outsource workforce analytics, the following are questions you should ask:

  1. Will hiring this provider result in agency dilemmas or other ethical problems?
  2. Can the analytics provider give evidence-based prescriptions based on the best evidence?
  3. Does the provider understand organizations and strategic alignment?
  4. Is the provider capable of leveraging psychometric and econometric methods? If so, which ones?
  5. Can the firm provide predictive results across time, or is its capacity descriptive in nature?
  6. Does the provider have a track record of linking workforce data with behavioral outcomes?

If you have other questions about workforce analytics or comments about this article, please let me know (tim@redcastlehc.com).

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