Quantify HR Success with Helpful Metrics

The most significant difference between the best human-resources departments and the average ones is that the best have developed extensive research and people-measurement efforts to track the effectiveness of programs.

Failing to utilize metrics is the primary thing that has kept HR out of the 'big leagues' and under the CFO's budget-cutting scrutiny for years.

Measuring the value of HR processes and showing the return on investment to the organization places the department on a path of continuous improvement and positions it as a business partner.

The 'Metric' System

A metric is an accountability tool that makes it easy to see if the company is producing results. With such measurements, competitive HR departments are able to build the business or economic case for their own work.

Most metrics have six elements: measurements of quantity, quality, time, money and satisfaction, as well as benchmark comparisons.

Metrics can change behavior by driving action to change. "What is measured gets done" is an often-repeated phrase used to underscore how numbers provide impetus to direct behavior. Metrics can be used to build competition among employees and create pressure when one department is shown to not achieve at the same levels as others.

There are three criteria for selecting metrics:

1.      Companies should ensure the metric fits the corporate culture of what is deemed important. For example, measuring the level of customer service would be important for a company. If a company's culture emphasizes speed or being the first to market, it would select metrics related to time.

2.      A metric should echo the critical success factors that make a company's product or service successful. HR, for example, might choose to measure the satisfaction of managers and applicants.

3.      Metrics should focus on issues that are likely to be reported to the chief executive officer. HR should select strategic output metrics that have the most impact on profit, revenue or product development. In recruiting, for example, cost per hire doesn't need to be reported to the CEO. Instead, HR should measure the performance of new hires, because that has a direct impact on productivity. Other types of measures related to hiring are the new-hire satisfaction rate and dates that reflect on a company's ability to meet deadlines.

HR can use data the company's information-technology and human resource information systems already have available, and draw measures of progress from this information.

Boiling Things Down

With metrics in hand, HR can compare its findings with standards through benchmark information provided by participants of self-initiated surveys or HR associations who are willing to share this information to others.

Comparison numbers for particular companies can be obtained, but asking other employers for this valuable information isn't always successful, Instead, HR pros should ask to trade information with them, provided the companies aren't competitors. Suppliers and customers might be more willing than other companies to make such exchanges

  

Sample HR Performance Measures

Percent of employees who leave during the first year	Number of days to answer suggestions
Number of suggestions resubmitted and approved	Turnover rate due to poor performance
Number of grievances per month	Percent of employment requests filled on schedule
Number of days to fill an employment request	Time to process an applicant
Average time a visitor spends in lobby	Time to get security clearance
Time to process insurance claims	Percent of employees participating in company-sponsored activities
Percent of complaints about salary	Percent of personnel problems handled by employees' managers
Percent of employees participating in voluntary health screening	Percent of offers accepted
Percent of retirees contacted yearly by phone	Percent of training classes evaluated excellent
Percent deviation to resource plan	Wait time in medical department
Number of days to respond to applicant	Percent of promotions and management changes publicized
Percent of error-free newsletters	Personnel cost per employee
Cost per new employee	Management evaluation of management education courses
Opinion survey ratings

What gets measured gets done: Developing an HR scorecard*

1. Introduction

There is increasing interest in measuring HR and initial efforts have made use of a HR scorecard to provide a framework within which to measure. However, experience of HR scorecard implementation has been mixed. In this article we provide insights into the reasons why, and outline several key steps that must be undertaken for HR measurement to be effective.

Traditionally, HR functions have struggled with appropriate and meaningful measures to quantify their value, or that of the people engaged within the business. The emergence of the HR scorecard concept has tried to address this point, taking its core design from the established balanced scorecard measurement framework applied in businesses. In short, the balanced scorecard is essentially a framework that attempts to collate measures across four areas: financial, internal process, customer and (people) learning, and growth rather than just the traditional financial measures (hence the term ‘balanced’).

2. How to approach a HR scorecard

Rather than immediately compiling a list of HR measurables that are easy to quantify, it is worth taking a step back and thinking through a checklist of points to address.

A. UNDERSTANDING THE REASON FOR IMPLEMENTING THE HR SCORECARD

First of all, one needs to understand the reason for developing a scorecard. For example, does a wider corporate scorecard necessitate this implementation be spun-off? Or the requirement of operating metrics on a newly established HR shared service center? Is it a means of prioritizing and reporting an existing collection of HR metrics? Or, a result of the new ERP software providing a range of HR analytics?

Asking these questions focuses on the type of measures required, from basic data to operating efficiency measures through to corporate value-based metrics – each perspective having a different focus.

It is not unusual to find that there is potentially more than one layer of metrics. A common error is to try and package all relevant measures in one scorecard, rather than a pyramid-layered structure. The HR scorecard – metrics hierarchy consists of:

# Values based HR metrics linked to corporate based metrics that reflect value-based measures

# HR outcome measures that focus on business outcomes

# Operational HR metrics that focus on efficiencies

# HR analytics that focus on workforce data

B UNDERSTANDING THE BUSINESS CONTEXT OF HR

Having understood the context of the HR scorecard rationale it is important to recognize the business context within which HR operates by asking questions such as:

# What are the value drivers of the business (units)?

# What is HR’s value proposition to the business?

# Where are HR’s biggest value points?

# Where is HR’s contribution recognized – by senior management, the line, employees, HR itself and/or investors?

# What does the HR function currently measure?

# Are the metrics activity driven or value driven?

# What human capital metrics are included in the general business reporting?

These questions will define the relevance of certain measures in terms of impact before the next step of defining HR value.

C. DEFINING HR VALUE

Unfortunately most current HR metric examples are operational in nature (efficiency metrics) and are of limited or no value.

In contrast, deriving HR metrics that relate to outcomes or contribute to value creation are of much more significance. HR value (or contribution to) can be seen and ultimately measured from three different perspectives:

# The value of the HR function to the business as a whole

# The value of HR processes as practiced throughout the organization, for example, performance management, and its fit with core fundamentals, such as culture, structure, strategy and so on

# The quantification of people value to the organization, and their input to strategic decision-making.

However, jumping from efficiency metrics to value-based metrics in one leap can be too much and thus a progressive move over time may be the optimum solution.

D. DEVELOPING THE HR VALUE MAP AND CONSTRUCTING HR METRIC TREES

This is potentially the most difficult step in terms of mapping the touch points – those where HR involvement or intervention has impact on business performance. This map provides the base for constructing a hierarchical link of HR metrics with business metrics (financial/process/customer).

E. SELECTING THE RELEVANT MEASURES AND METRICS

This step is unfortunately the one in which most scorecard enthusiasts begin! The trick here is to construct a set of relevant metrics that meet with the initial rationale for the HR scorecard design. The outcome of this stage should result in some form of draft scorecard framework.

F. MAINTAINING AN HR SCORECARD FRAMEWORK

The scorecard is an organic design – one that changes with the business. Thus this step is most important in continually updating and reviewing the scorecard framework, ensuring that it continues to report relevant metrics and discontinuing those metrics that are no longer required. This is sometimes the hardest task.

Following the steps outlined above, whilst by no means definitive, will at least ensure a HR scorecard design that will be relevant to the business rather than reflective of a loose collection of HR metrics.