HR metrics will become increasingly important as more functions attempt to justify their status as strategic business partners rather than merely cost centres. Jamie Barber details the process of HR metrics and provides nine steps for successfully measuring the performance of the HR function
If you’ve taken part in HR strategy meetings or attended any industry conferences in the last few years, chances are you will have noticed the amount of time devoted to the topic of metrics. The collection and analysis of data has evolved from the preserve of a small number of dedicated number crunchers into a tangible and highly visible tool, able to play a crucial role in strategic decision-making.
However, the collection of meaningful and valuable data can still seem daunting and shrouded in mystery. So, by way of an introduction, it’s worth looking at why metrics are captured in the first place.
Perhaps the most crucial advantage of a sound HR metrics program, according to US recruitment expert John Sullivan, is that it enables HR to converse with senior management in the language of business. Operational decisions taken by HR are then based on cold, hard facts rather than gut feeling, the figures being used to back up business cases and requests for resource. The HR function is transformed from a bastion of soft intangibles into something more scientific, better able to punch its weight in the organisation. In addition, the value added by HR becomes more visible. This will become increasingly important as more and more functions attempt to justify their status as strategic business partners rather than merely cost centres.
The capture of metrics also underpins the old adage of ‘what you can’t measure, you can’t improve’. The five key practices of a human capital index (recruiting excellence, clear rewards and accountability, prudent use of resources, communications integrity, and a collegial, flexible workplace) require the capture of metrics for their very definition. A study conducted by the HR consulting firm Watson Wyatt has shown a strong correlation between these five practices and a 30 per cent increase in shareholder value.
Furthermore, a survey of 200 managing directors and HR directors showed that 82 per cent believe Human Capital Management (HCM) is critical to the fundamental success of a business, while 80 per cent think effective measurement is crucial to deliver effective HCM. Another study, conducted by iLogos, found 82 per cent of HR practitioners believe metrics are important to the ultimate success of internal redeployment initiatives. Sullivan believes an ever-present factor among companies with widely acclaimed HR procedures and practices – the likes of Microsoft, Intel and Cisco, among others – seems to be their extensive use of metrics to drive strategic decisions.
So, given the benefits of establishing a new metrics initiative or overhauling an existing process of data collection, how do you actually go about it?
Nine steps to metrics excellence
The steps outlined here are not intended to be fully comprehensive or applicable in every circumstance, but they should give you some idea as to where and how to start.
Re-examine your business objectives. Before doing anything else, revisit your organisation’s strategic business objectives. While there is some value in each function measuring its own performance, the overriding priority should be the satisfaction of the end customer (either internal or external). As customer satisfaction is more process-oriented, your chosen metrics suite will likely straddle departmental boundaries.
As overall business objectives take precedence over functional silos, processes tend to become more effective and focused, and the beginnings of a real team culture are fostered. This is particularly important as organisations become more geographically spread and the number of staff working remotely increases. The move towards a more process-oriented culture also creates ideal conditions for the propagation of continuous improvement initiatives such as Six Sigma, according to Sullivan.
Take the ‘CUP’ test. It is surprising how many organisations are busily accumulating reams of data from which no-one seems to be able to extrapolate much useful information. If you already collect metrics, take this opportunity to rifle through the reporting archives. Give each set of data the ‘CUP’test. Does it make a contribution to overall organisational business objectives? Does it provide an insight into whether organisational resources are being utilised at their optimum level? Does it make any assessment of productivity which could lead to efficiency gains and therefore a better customer experience? If each set of data does not address at least one of these three criteria, then US-based human capital consultant Kimberly Bedore recommends questioning the usefulness of continuing to collect it.
Keep it simple. For all the potential of HR Information Systems (HRIS) to slice and dice data in a myriad of ways, it has been suggested that information overload is a greater threat to the effectiveness of HR than a complete lack of measurement. Measuring everything that moves also results in lengthy reports which may be off putting to others. One chief executive complained in a recent interview, according to Sullivan, that he “didn’t look at the report anymore – it’s too long”. The report in question weighed in at three pages . Research has suggested that in order to focus on the priority areas, around five key metrics is a good place to start, Sullivan adds, although the exact number will vary depending on strategic business objectives.
Decide what types of metrics to capture. Metrics fall into three principal categories, says US recruitment guru Lou Adler: historical, real-time and forward-looking. Historical metrics give a good general indication of an organisation’s health, but reliance on them has been compared to trying to drive a car while looking only in the rear-view mirror, according to Adler. Real-time metrics are the snapshots which can act as warning signs that a process may be about to go horribly wrong (for example a sudden drop in incoming applicants), while forward-looking metrics extend current and historical trends into the future to enable contingency planning.
In order to present a comprehensive picture, your chosen metrics suite should ideally contain all three types of figures, though the exact proportions will depend on your industry type and strategic business objectives.
Establish a benchmark. The current state of affairs should be measured so that the future impact of any changes can be assessed. You may have some idea where you’re heading, but if you don’t know your starting point on the map you’re still very likely to get lost.
You could also look at benchmarking your organisation against other similarly sized organisations or industry ‘best of breeds’. For more information on industry benchmarking, try PricewaterhouseCoopers’Saratoga service.
Integrate data collection into existing workflows. Avoid burdening staff with extra workloads. Data should be collected automatically without the need for manual maintenance of parallel systems, otherwise you will decrease the chances of collecting a comprehensive set of data, according to iLogos president Yves Lermusiaux. This is the arena in which Enterprise Resource Planning (ERP) and Applicant Tracking Systems (ATS) have a key role to play, especially when the organisation has departments scattered across the globe. The latest HRIS make it possible to data mine in a way that would have been inconceivable as little as 15 years ago.
Allocate resource for analysis. Only by undertaking rigorous analysis will HR be able to transform data into meaningful and valuable strategic information. However, David Szary, president of US-based Recruiter Academy, warns against paralysis by analysis: make the results too complex and they may be dismissed out of hand as being too scientific or too academic. Graphical representations with short textual summaries make for greater accessibility and readability.
Have the power to act. The gathering of metrics is a futile exercise in administration if HR lacks the teeth to act promptly on the findings. For example, if the metrics indicate that retention rates would be dramatically improved by increasing performance-related bonuses but HR has no means of prompting this remedial action, then a potentially valuable tool has been wasted.
Close the loop. Good business practice stipulates that all business processes and procedures should be subject to periodical review. The gathering of metrics should be no exception. When initially defining the metrics suite, ensure that a review date is built in. For seasonal cycles (for example, graduate recruitment), it would be advisable to build up statistics over a number of years. If a metric is enhanced following a review, make this clear in all future reports so that readers analysing historical trends are under no illusion as to what they are comparing.
So, you’ve followed the nine steps outlined above and, let’s face it, none of the suggestions needs a degree in statistics to implement. Surely every organisation worth its salt will have been rushing to implement metrics initiatives based on such sound common sense, right?
Wrong. While a number of organisations have come to concede that metrics have a role to play in the basic operational arena, many are missing the strategic potential. An iLogos survey of HR practitioners found that while 76 per cent stated the goal of improving retention rates, only 39 per cent actually tracked turnover. Fifty-six per cent had a strategic business objective of lowering staffing costs, yet only 29 per cent actually tracked the cost of each hire.
The prospect of taking real competitive advantage is very much alive and should be extremely enticing. Once you’ve seen the effect on your bottom line and you’ve had other organisations approaching you in order to benchmark against your HR practices and procedures, then you can then feel justifiably satisfied that you’ve used metrics to take the strategic initiative.
Jamie Barber is a consultant for e-resourcing solutions firm IntroNet. Email: Jamie.Barber@IntroNet.com.