HR is the last major business function to adapt the widespread use of metrics. HR resists using metrics, almost like developing them was the equivalent of a painful surgery.

 

IS YOUR COMPANY YET  TO USE  HR METRICS ?

 

 In the game of cricket , it would be obvious to all that without the third umpire the game would really not fuction. The Olympics the laser marker separates the silver medalists from the gold medalist by a thousandth of a second.. you couldn't become a champion without measuring results.  In fact, the definition of a champion is "the one with the best results.”

 In the general business world the use of numbers and metrics is part of life.  CEO's, CFO's and shareholders all measure results using numbers and money values.  Within all major firms all projects, products, and business units are evaluated on the basis of numerical results. 

 

HR THE LAST FUNCTION TO USE METRICS?

However, in direct contrast, HR resists using metrics, almost like developing them was the equivalent of a painful surgery. HR is the last major business function to adapt the widespread use of metrics.  The recent rise in the popularity of supply chain management has demonstrated how previously "low glamour" overhead functions (purchasing, warehouse and transportation) could move relatively quickly from obscurity to "profit center".  Their success coupled with the dramatic budget cuts required in the most recent downturn of the economy has spurned HR to realize they need to begin using metrics to improve their image and prove their value.  

 In many organizations, people costs are the highest variable budget expense.  Between 35 and 60% of all variable costs of companies are people costs.  With people being that high of an expense, HR really has no choice but to prove it's economic value through the use of metrics. Nearly everything in HR can be measured but it's smarter to focus on the few items that have the biggest cost and the most impact.  If you can prove their value most CFO's will assume the rest of HR is operating efficiently. 

BENEFITS OF USING HR METRICS 

Very few  today question the need for metrics in the planning and goal setting process. yet for the sake of emphasis let us restate the advantages of HR metrics.

 

Metrics help you focus 

Metrics help you manage better. They tell you what to do more of and less of.  They allow you to focus your limited resources on tools and strategies that have the most significant business impact.

Metrics help you ensure that you are meeting your goals and customer needs – It’s easy to assume that your internal customers are happy with you but it’s better to find out for sure. Customer satisfaction metrics allow managers to know who is happy and who isn’t. In addition, if you provide senior management at year end with a report that lists your yearly goals and the metrics to prove that they have met each, you send a quick but clear message that you did what you promised.

                                                                                  
Metrics tell you how to budget & seek a ROI

If what you measure is also closely tied to your goals and your budgeting process (as it should be) results metrics will tell you where to increase and decrease but just spending and time allocation.

Metrics tell you what to stop doing

 Quantifying and comparing the success of every program highlights to managers where resources should be cut and who should be punished or fired. Rapidly cutting under performing assets (and shifting them to high ROI programs) is an effective way of improving your efficiency and performance

Metrics create priorities & eliminate confusion 

Employees and managers receive so many mixed communications and messages that deciphering what is important can be difficult. Weighted metrics both define what is important and they also tell the person precisely what level of performance is expected. Metrics tell everyone what is a high priority. Without having to give a speech, metrics help focus everyone’s attention on the important issues.

They help push continuous improvement 

 Comparing results metrics between different time periods tells you whether and how fast you are improving. Metrics help focus recognition and attention on those programs that are continuously improving. It also gives stagnant programs a benchmark to compare themselves to.
 

Metrics can demonstrate the revenue impact of HR programs – The language of business is money and money values.  HR gets itself into trouble by getting into the bad habit of using other "language".  CFO's don't understand or appreciate the value of worker satisfaction or engagement; they do however understand costs and ROI.  It's not wise for HR to report its results any differently than any other business function.  HR should demonstrate that for every dollar spent, it produces increased results and output. It's possible to demonstrate the efficiency or impact of any HR program.  

THE POTENTIAL REVENUE IMPACT OF SOME HR PROCESSES 

Below I have provided a few examples 

Compensation – demonstrate that highly paid workers produce more than workers that are paid an average wage and that giving a worker at 10% raise increases their productivity by more than 10%.  Tying worker pay  to their output or productivity always pleases top management

Training – demonstrate that there is a high correlation or connection between the number of hours a worker receives in training and their productivity. Show that worker productivity increases immediately after they receive training

Recruiting — demonstrate that new hires produce more than the average (already on staff) worker.  Demonstrate that your hiring process produced recruits that score at the very top of your performance appraisal scale. Demonstrate that the sales people you hire under your "new recruiting system" produce average sales significantly higher than those hired under the old system.

Employee relations — demonstrate that malcontents and bottom performers become average or better performers within a year after employee relations deals with them.  Also demonstrate that your program identifies, fixes or removes bad managers rapidly

HRIS systems – HRIS systems demonstrate their effectiveness by their impact.  By demonstrating the "before and after difference after technology implementation you can show that for example applicant tracking systems result in faster and better quality hires then prior to the implementation of the system.  You can also demonstrate HRIS impact through manager satisfaction surveys, which show how satisfied managers are with the efficiency and effectiveness of the technology.  If technological systems do not produce outputs or results that are a higher quality, cheaper or faster than non-technology systems, there's really no reason to implement them.

Formulating the revenue impact or ROI merely requires you to measure the before and after effect of an HR program.  Just show that performance increases after the program is implemented. Another alternative is to do a split sample where you apply a new HR program to one team or division and not to another to demonstrate the relative impact of the HR program.  HR needs to act much more like a science and do a "split sample" in order to prove your impact beyond any doubt.

 

HR goals met – HR departments frequently set unclear and unquantifiable goals at the beginning of the year but that are seldom measured throughout the year and formally assessed at year-end.  In order to improve HR performance and ensure that HR professionals are focused on the appropriate goals and activities, it is essential that the goal assessment process be more formalized. % of top priority HR goals that were met or exceeded during the year (goals are set, quantified, prioritize and approved by senior management at the beginning of the fiscal year

 FACTOR HR  METRICS  IN YOUR 

 CORPORATE PLANNING PROCESS

 

 My consulting intervention HRM MONITOR ^© is an approach to review the operations; audit the effectiveness of HR to stated objectives; to look for scope for improvement and finally have an clear understanding of the ROI of the money spent; in a budget tight corporate setup.

 

Increasingly, HR departments are turning to a variation of an established financial metric--return on investment or ROI--to demonstrate the financial vitality of their most critical and highly visible initiatives. The HR-tailored ROI ratio is calculated by assigning monetary values to an HR program and dividing the value by the program's costs. (Total program benefit divided by program costs).There are two challenges in calculating ROI, One is to determine what it is that you value about the program you're measuring. The other is to assign a monetary equivalent to the value.

 

HR practices have a direct impact on general business performance. Typically, the most significant HR practices are viewed from 6 perspectives: rewards and accountability; flexible administration; recruiting and retention excellence; communications integrity; dedicated HR service technologies and prudent application of resources. Most research analyses have shown a strong correlation between these practices and a 30% increase in shareholder value.

 

Most strategic HR metrics focus on productivity, recruiting, retention and employee relations. Of these, productivity is the most important. Whenever you can demonstrate to top management that you can produce one unit of your product or service at a lower labor cost (because of efficient hiring, retention, training or -  motivation) you will be a hero.  You don't have to demonstrate individual program effectiveness if overall worker productivity continually increases. Metrics can allow HR to provide evidence of its strategic impact 

Best of luck

Dr Wilfred Monteiro