HR has many virtues and a few vices – we are passionate about people but tend to feel insecure with our place in the organisation. The result is HR probably tries harder than any other function to prove its worth and demonstrate its value within the organisation. The end result is that HR either goes over the top to produce overwhelming evidence of how busy it is or it chooses to ignore it altogether hoping that business leaders won’t ask any awkward questions!
Our experience at CourageousHR is that most HR Leaders we speak to are looking for a meaningful way to measure the business value their HR Community generates but struggle to put in place a robust HR measurement system. Our advice is always the same: being able to measure the success of HR and linking HR activities to business objectives is a key step to building credibility and influence for HR.
Without meaningful measures, HR will never be able to earn the respect of the business and will continue to be a peripheral strategic player.
HR Metrics - Challenge and Opportunity
The definition of any metric is “an agreed indicator of a process or outcome”. This definition applies to popular metrics such as ‘profit’ and ‘loss’ (where the rules which define what they mean can be very different in different countries) as well as potential measures for HR.
Unfortunately, HR metrics are not perceived to be as ‘robust’ as financial or marketing metrics as there are neither standard definitions for even popular measures (such as employee turnover or productivity) nor a history of their use in organisations.
However, HR metrics can provide real value as they can link employee Return On Investment to an organisation’s financial objectives. In addition, if applied correctly they can help managers to manage by providing pre-agreed indicators of success whilst at the same time help leaders to lead by defining strategy in operational terms (linking strategy and people), quantifying the organisational vision as well as articulating leadership expectations.
However, HR needs to be careful what it measures as measurement can be an industry in itself! We have noticed that quite often the focus can often be on short-term, narrow, or easy metrics and therefore inappropriate. In addition, it is not unheard of that metrics can be used as an excuse for driving inappropriate behaviour – ‘winning’ at any cost whilst the over use of metrics can make people feel like ‘cogs in the machine’.
Back to basics
General principles of Metrics
Although every organisation’s need is different, there are some general principles when using metrics:
- Never use metrics in isolation e.g. focusing on employee turnover without understanding the quality of leavers can lead to dangerous conclusions
- Always use metrics with clear objectives – always understand what is the goal e.g. measure the success of a business strategy
- Compare like for like i.e. the hiring cycle is very different for executives and operational staff
- Seek to use the same metrics year on year e.g. metrics become more powerful when compared against previous time periods
- Balance the costs of obtaining the metric with the information it produces – producing metrics costs money
- Identify the audience and measure appropriately – understand what stakeholders want and not what you think they need
- Quantitative measures are not necessarily better than qualitative ones – all measures (even profit) include an element of judgment, only the degree changes. Quantitative Metrics are measures that involve an amount or size e.g. turnover percentage, monetary value. Qualitative Metrics are measures that involve qualities e.g. employee opinions
- Seek to include a balance of metric types. Metrics only look at a few dimensions whilst organisations work on many. Use ‘leading’ (i.e. future activities) and ‘lagging’ (i.e. past activities), qualitative and quantitative, financial and non-financial, internal and external etc measures to obtain a balanced picture (but be aware of the other principles!)
Key questions to ask
Questions can be very powerful in any context and HR Measurement is no different. Consider the following questions and determine how focused and robust your HR Measurement system is;
Why do you want to measure? What should you measure and why? What is the right balance of metrics that gives the best picture of the organisation? What mechanism and process should you use to capture and report metrics e.g. balanced scorecard?
What behaviours (or lack of behaviours) will be driven by these measures?
What might be the unintended consequences?
Validity and reliability
How do you ensure that your metrics are both valid (measure the right thing) and reliable (will obtain a consistent value)?
What is the right balance of internal e.g. historic, ‘gut feel’ and external (benchmarks) e.g. competitors, regulatory
Measuring the strategic contribution of HR
Measuring the contribution that the HR community makes to the business is a critical step in demonstrating the actual and potential value that HR can bring to an organisation.
HR can add ‘value’ at all stages of the strategic process with the golden nugget for HR measurement being when it is able to link the Business Strategy to Personal Objectives. This is because one of the greatest failings of organisations is not the lack of a business strategy but the failure to implement the one they have got. By HR providing this measurement flow highlighting and demonstrating the clear linkages, dependencies, outputs and value between the Business Strategy through to Personal Objectives it allows HR to significantly influence and shape the strategic direction of an organisation.
As People (employees) implement strategies, the organisational secret is to translate the business strategy into personal objectives. In order to do this, the business strategy needs to be broken into a People Strategy, which in turn can be subdivided into team/function strategies and finally into individual objectives.
- Business Strategy is pattern or plan that integrates an organisation’s major goals, policies and action sequences into a cohesive whole
- People Strategy is a set of programmes and activities that seek to ensure the organisation’s people can achieve the business strategy
- HR Strategy is the HR Function owned and managed projects, processes and activities that support the People Strategy
Therefore, building the People Strategy is a process which is driven by understanding the business drivers which in turn shapes the business strategy, allows leaders to understand the potential business impact and therefore People implications. Once the People implications are understood, a set of People Measures can be defined and agreed.
Thinking, behaving and measuring HR’s strategic contribution
Business Strategy Contribution
Being ‘strategic’ is critical to an HR Community’s success and is highlighted in all existing research into the role of HR. However, unless HR knows how to think and behave strategically how can it hope to measure its strategic contribution?
For HR to be involved in the strategic process means it has the opportunity to influence and guide at the Planning, Development and Implementation phases. HR can add a unique contribution (and therefore be measured in doing so) through it having access to unique data (e.g. Competitor knowledge based on recruitment, compensation analysis and sharing data with fellow HR professionals in the industry and third party recruiters) and capability knowledge of employees based on development and training plans. In addition, HR can bring a unique perspective as it has access to all parts of the organisation, is able to perceive the inter-relationships, strengths and weaknesses
Consider within your organisation where the change management expertise is located. More often than not it is within HR, which means it has a very good understanding of the importance of the foundations of strategy – values and culture – which it can use to inform organisational leaders on the people implications of the strategic change options. HR also knows how to effectively use engagement ‘levers’ (e.g. reward, recognition, group dynamics) to help the organisation ‘sell’ and gain buy-in from employees to emerging and new strategies. Finally, HR can play a vital role in risk mitigation as it understands the regulatory, cultural and marketplace risks of alternatives.
Finally when it comes to the Implementation phase of a strategy, HR is able to support the process, but never lose sight of the importance of differentiating between the ‘People’ and ‘HR’ strategy. It has the opportunity to significantly effect and influence the modelling of best practices by undertaking key aspects of the strategic roll out (e.g. recruiting, developing and exiting appropriate employees), as well as providing general support of the implementation process.
People Strategy contribution
Once business strategies are agreed, they need to be aligned with people activities through the People Strategy. The HR Community can play a key role at this stage by implementing its responsibilities within the People Strategy as well as supporting the business build the People Strategy.
This could involve using its skills and knowledge to support the business through a number of different routes including the creation of High Performance Work Processes, Process Mapping, Cultural Change and Innovation.
Human Resources Strategy Contribution
The HR Strategy covers those responsibilities that the HR Community has within the People Strategy. These can be broken down into HR Fundamentals and HR Value Proposition.
HR Fundamental Metrics
HR Fundamentals are those activities that HR must undertake to ensure the smooth running of the organisation. Typical examples might include the payroll, the recruiting process and salary review process.
There are two broad types of measures – to either ensure the process runs efficiency and to ensure the output meets agreed measures.
Process efficiency is typically measured through an SLA type agreement, process metrics typically cover; Cost; Quality; Speed; Customer (dis)satisfaction. These activities are often centralised and sometimes outsourced (or off-shored or near-shored!).
Employee Life Cycle provides an opportunity to supply effective measures for the HR Community. For example Resourcing measures tend to include Cost per hire, Speed of hire, Customer satisfaction and Quality of hire. For Learning and Development, consider using Performance, Retention, Achievements (salary, promotion) and Employee satisfaction measures.
The key is to ensure that the HR Community is only measured on aspects of the employee life cycle that they control e.g. the quality of hire is the responsibility of line management but the quality of the short list might be an HR responsibility.
HR Function potential metrics
The HR Value Proposition refers to HR’s capacity to support the business to deliver the business strategy, implement performance improvement through change and being an active partner. HR measures will depend upon the unique value that an HR Community brings to its business. Linked to the People Strategy and measured through people metrics, potential contributions that most HR Communities will be able to deliver against include;
- Co-delivering the business strategy e.g. Increase employee productivity; Improve employee engagement; Improve employee brand
- Supporting the implementation of performance improvement through change e.g. Implement change
- Working in partnership with the business to create synergies e.g. Involvement in the planning, designing and implementing of the business strategies; Authority levels; Involvement in general management decision making; Ability to integrate the people agenda into the business agenda; Proactively challenges status quo; Awareness of the unique contribution of all parts of the business to achieving the business goals
HR Individual potential metrics
Based on the four different types of individual measures, potential metrics for HR professionals might be;
Deliverables (output or what they do)
- Business strategy e.g. Contribution to business strategy such as planning, designing, implementing; Measured by feedback from business, quality and completeness of the Business Strategy and the People Strategy; Efficiency of the People Strategy process
Behaviours (process or how they convey the deliverables)
- Measurement against a defined competency model; Able to say no; Challenge in a constructive way; Talk about the business and organisational issues; Links business strategy to people implications to HR deliverables; Able to inform and educate stakeholders on the importance of people (e.g. Coaching); Advice is sought by colleagues and peers; Level of proactiveness
Curriculum Vitae (CV) (input or what they bring to the role)
- Previous experience; Qualifications; Knowledge through training / development
Organisational (context or how they interact with the wider organisation)
- Authority levels (formal sign-off); Level of involvement in management team, decision making; Time spent on strategy, performance management and HR fundamentals
HR Metrics - Turning a vice into a virtue
The perennial challenge facing HR is convincing others that that it is a strategic player. To help turn this around HR needs to shift its focus away from its transactional and tactical approach to measurement and move towards a measurement system which emphasises value rather than volume.
The activities of Human Resources and its professionals, like any other part of an organisation, can be measured and judged. However, unlike more established functions such as Finance, Sales and Marketing, HR does not have a heritage or regulatory framework of established metrics to draw upon and therefore faces a further difficulty in gaining organisational agreement to potential metrics before they are implemented.
If HR is able to create a measurement approach which is able to map the value chain from the Business Strategy to Personal Objectives, HR will be able convert one of its few remaining vices into a virtue and so create a more secure place in the organisation.