Industry insights: What’s stopping HR from realizing a future of data-led performance management?

In the era of digital transformation, data has become a crucial asset for organizations. It is no longer just about managing resources; it’s about leveraging data to make informed decisions. This is particularly true in the realm of performance management. A 2022 report by Deloitte finds high-performing organizations are 3.5 times more likely to use data to inform transformation efforts and four times more likely to gain worker input when shaping changes. Data-led performance management is revolutionizing how organizations manage their most valuable asset: their people. In this industry insights round-up, we consider how the role of data-driven performance management could shape talent management to deliver these improvements and what factors hold organizations back from achieving this reality.

Data-led performance management: Measuring the right things

In a 2023 article, Deloitte emphasizes the importance of measuring the right things to build trust within an organization. They suggest that organizations should regularly evaluate the links between metrics and intended outcomes. “Using data to treat the symptoms of a problem only offers a temporary solution—organizations should be willing to go deeper and allow the data to point to organizational changes that may be more challenging or difficult to implement but could ultimately help an organization achieve its intended outcomes,” they advise.

Deloitte goes on to emphasize the role bias can play, including how it can impact the effectiveness of performance management. Deloitte recommends that organizations continually audit for bias to ensure that data collection and use are equitable and ethical. They suggest using technologies that offer testing tools designed to take a continuous, automated approach to test against bias. Third-party validation is a critical step to mitigate bias. In Dr. Randal Pinkett’s five-step approach to data-driven DE&I, he outlines the need to conduct a DEI inventory to identify areas for improvement.

Deloitte also suggest that HR can use data to shape strategy and design organizational structures. By aggregating data across the enterprise, organizations can gain new insights into how practices, behaviors, and decisions may impact the organization. “Data on work and the workforce can also be used to take a broader, evidence-based approach to strategic decisions and execution.”

According to the Chartered Institute of Personnel and Development (CIPD), evidence-based HR practice can lead to decisions based on the best information, a stronger body of knowledge, and greater gravitas for people professionals. “Evidence-based professionals make better-informed decisions by looking at probabilities, indications, and sometimes tentative conclusions,” the CIPD explains. This approach requires critical thinking, questioning assumptions, and carefully considering what evidence is needed for each decision.

Barries to data-led performance management in HR

While data and analytics offer significant potential for enhancing performance management in HR, organizations must address considerable challenges. By acknowledging and addressing these challenges, HR professionals can better leverage data and analytics to drive performance management and ultimately organizational success.

Reliance on outdated insights and untested best practices

The first challenge is a reliance on outdated insights or untested ‘best practices. The Chartered Institute of Personnel and Development (CIPD) notes that people professionals often rely on tradition, outdated insights, or untested ‘best practices’ instead of the abundance of scientific evidence available. This can lead to decisions that are not based on the best information, undermining the effectiveness of performance management strategies.

Lack of engagement with robust evidence

The second challenge is the lack of engagement with robust evidence. Despite the rise in the use of data and analytics in HR, the CIPD points out that evidence-based practice is still in its infancy in HR and management compared to other professions. This lack of engagement with robust evidence can limit the effectiveness of data-driven performance management strategies.

Inadequate use of technology and data

The next challenge is the inadequate use of technology and data in HR functions. A separate CIPD survey of UK-based HR bosses revealed that while most organizations have HR information systems (HRIS) and payroll software, fewer HR bosses said their organization used reward and recognition software or platforms for workforce planning. This underutilization of HR software can limit the scope and effectiveness of data-driven performance management strategies.

Lack of skills in interpreting and using data

Another challenge is the lack of skills in interpreting and using data. As the CIPD points out in another report, becoming a ‘tech savvy’ HR professional involves using technology and people data in ways that improve people’s working lives. However, not all HR professionals may have the necessary skills to leverage these tools effectively, which can hinder the implementation of data-driven performance management strategies.

Privacy, security, and a value data exchange

A final key challenge is ensuring the privacy and security of employee data. As organizations collect more and more data on their employees, they must also ensure that this data is stored and used in a way that respects employee privacy and complies with data protection regulations. Organizations may need to overcome skepticism and develop a clear value exchange with employees. Richard Rosenow explored this topic in an HRD Live Podcast episode. “The only way we move forward as a business is if people understand,” Rosenow begins. “‘If I’m contributing my data, through workforce systems, chat systems or collaboration tools – if my data is coming into the company – am I going to see value from it as an employee, or is the workforce going to improve?”

Achieving data-led performance management

Data-driven talent management can deliver better results for both the individual and the company. For the individual, it can provide a clear, objective assessment of their performance, identify areas for improvement, and inform personalized learning and development plans. For the company, it can help to identify high performers, inform succession planning, and ensure that talent management strategies align with business objectives.

This holds great promise for improving performance management and delivering better results for both individuals and organizations. However, organizations need to navigate the challenges associated with this approach and ensure that they use data in a way that is ethical, respectful, and human-centered.

HRD Connect Curators of the New Business Landscape. HRD Connect produces industry-recognized content for senior HR leaders. Through articles, case studies, Q&As, podcasts, events, and more, we offer truly progressive and cutting-edge insights designed to help people leaders address core HR challenges and add greater value to their business.

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