Senior executives are asking you for data again. They want evidence ofwhat HR is contributing to the business. This month, you’re more thanready. Have I got a metric for you, you’re thinking as you proudly unveil a gem: According to your careful calculations, the company’s turnover rate was only one per cent last year. In the end, HR metrics is about giving senior management what they want: the straight talk about dollars.
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[/span][span style="font-style: italic;"]So what? the CEO asks. Business hasplummeted. What other HR metrics can you show me? And that one-per-cent turnover, who was it, anyway, that left the company?
[/span]That one per cent happened to be a stellar employee whose departure could be compared to Tiger Woods leaving his golf team. Senior executives don’t care much about percentages. They want a dollar figure they
can attach to those percentages, such as what was the dollar impact of that one-per-cent turnover. Numbers do lie, sometimes, but CEOs aren’t easily fooled.
Metrics that deal solely with HR operations’ efficiency are what San Francisco State University professor and advisor John Sullivan calls the “so what” metrics: “These do not stir much interest among senior executives.”
HR can go ahead and measure its own operations for internal purposes, he says, but report it solely within the HR function. “HR has a bad habit of reporting dozens of ‘so what’ metrics when, in fact, senior executives seldom want to see more than 10.”
What they do care about, he says, are “strategic” HR metrics. Since in most organizations up to 60 per cent of variable costs are related to employee and labour costs, executives are realizing that the measure of
workforce productivity can no longer be ignored.
HR metrics in Canada
Just as HR practitioners were getting good at making the business case for investing in HR programs, now there’s a push for them to measure results. “Just recognizing that metrics are important is a good starting point,” says Henryk Krajewski, vice president and national practice leader of Right Management Canada. “But in Canada I don’t see HR metrics as accepted practice at all.” Figuring out how well HR is doing, he says, is not at the top of anyone’s list, but should be.
Most HR departments keep track of what the company spends on people, but the Conference Board of Canada reports a gradual shift from that sort of metric to linking HR with organizational performance. Rather than looking at ad hoc HR programs and processes relating to people in organizations, there’s a move to more of a continuum between people and profitability.
“That’s hard to do,” says Ruth Wright, the Conference Board’s principal, human resources management research. “It’s not for the faint of heart.”
The shift is coming from south of the border, with influential author and speakers like John Sullivan, who was once called “the father of HR metrics.” Sullivan says Canadian HR departments tend to focus heavily on
“softer” metrics like employee engagement and satisfaction compared to their U.S. counterparts, who are more about “hard” metrics like workforce productivity. Sullivan, a professor and advisor to management at SFSU’s department of management has trained more than 1,000 Canadians on HR issues from coast to coast and has given presentations about HR in 25 countries. “The need to improve HR metrics is simply universal,” he says
The problem with metrics is knowing where to focus. The multidisciplinary profession of HR has several subfunctions, each of which drives the other. Arriving at results and where those results come from can involve all kinds of statistical modelling and multi-level analysis. With so much to sift through, it’s no wonder HR may feel bogged down in what the Conference Board calls being “data rich and information poor.”
Must HR metrics be so daunting? Not according to Krajewski. “Certainly, it’s easier to say we spent X on marketing and saw an uptake in our sales than it is to prove that higher employee engagement leads to higher business outcomes,” he says. “But my provocation to business leaders is that HR metrics doesn’t have to be that complex.”
“Senior executives want hard metrics, rather than the ‘soft’ or ‘balanced’ metrics HR more often than not attempts to provide them with,” says Sullivan. “CFOs in my experience are not balanced and they are certainly
not soft.” Rather than focus on cutting HR costs or demonstrating HR efficiency, metrics should focus on revenue (see sidebars).
The answer was there all along
If HR metrics is a matter of asking senior executives what they have long ago decided is important to measure, that should ease the burden on HR. Even the tools for measuring the link between HR and business results don’t have to be costly.
Sure, if you have the resources, there are consultants that specialize in metrics, and software ranging from PeopleSoft to simple Excel spreadsheets can simplify the task. But most large firms already have sufficient software capability to calculate what’s needed, says Sullivan. Their added cost will be minimal.
All this time HR has tried to make the C-suite see things their way, which Krajewski says is backward thinking. “It’s like there are two different bus stops. The whole HR field has been trying to convince business leaders to come over to our stop and talk our language, when we should have been going over there and learning how they think and presenting the ideas in a way that’s palatable and compelling to them.”
Michelle Morra is an award-winning journalist and former editor of Workplace magazine.
What to measure
A metric is simply a measure of results. John Sullivan, professor and advisor to management at
San Francisco State University’s department of management, says HR should have one metric for each major goal they have set for the function. “If you have HR goals for quality hiring, increasing innovation or increasing the productivity of the workforce,” he says, “then you need a metric to see whether each of these goals was actually met.
The following metrics, he says, are important but all-too-often omitted in Canadian workplaces:
1. Quality/on-the-job performance of new hires.
2. Increase in employee output (both quality and quantity).
3. Loss in revenue as a result of a slower “time to productivity” of new hires due to poor on-boarding/orientation.
4. Loss in revenue as a result of “position vacancies” in positions that impact or generate direct revenue.
5. Overall productivity of the workforce (the increase, year to year, of the revenue generated for every dollar spent on employee costs).
6. Manager satisfaction with HR’s direct impact on their individual business results.
7. Employment brand strength - percentage of surveyed applicants that have a positive image of the firm’s management practices.
8. Employee referral rates as a percentage of all hires.
9. Impact of on-boarding on new hire “time to minimum expected productivity”.
What HR should start (and stop) measuring
1. Start with your customers. Krajewski’s advice to his clients is to start by looking at what customers are saying about the company and how it lives up to its brand promise. “If everything is aligned in your subsystems - motivation, rewards, performance management, succession management, and strong leadership that really takes advantage of people’s talent - you will create a very compelling customer
experience. But if the customers aren’t happy, look back through that chain. Ultimately you’ll come across a
broken subsystem, something that’s not lined up.”
2. Think in future terms. Rather than looking at “outcome measures” about where you’ve been, what you did and what you spent in the past, Wright recommends “indicator style” measures that tell you where you’re going. For example, rather than measure just how long it took to hire someone and what it cost to fill the position, she says it’s more important to produce data on the quality of the new hire, the new hire’s performance, and the turnover of new hires in general.
3. Don’t beat the CEO with a yardstick. You can measure a lot of things. You can measure how fast the product got to market, what it cost for your team to get the product out the door, the engagement team’s feedback, customer service, customer feedback on that service, number of product defects, number of regulatory actions against the company, and more. The real question is, what metrics will interest the CEO?
The best strategic metrics, according to Sullivan, focus on the business impacts of critical HR activities, including hiring, retaining and developing top performers in mission-critical positions.
4. Work with the CFO. This might sting a little: Sullivan says HR professionals need to learn they are “relative amateurs in the world of metrics” and should learn to live by rules that are already established. “The metrics that really matter,” he says, “have already been predetermined when the business set its overall business goals and metrics. Any new ones are always a hard sell.” Rather than rely on their own judgment, Sullivan says, HR should consult with the CFO’s office, “the undisputed king of metrics,” to determine which metrics senior executives really need and want to see. Otherwise, when HR executives decide for themselves what to measure, he says, “it’s like a taxpayer choosing on their own which items they’ll report to the IRS. It’s a fundamental mistake that shouldn’t be repeated.”
5. Make them read it. In its ongoing struggle to gain credibility and respect, HR can sometimes do all that work on metrics and have no one notice. “Another lesson I’ve learned,” says Sullivan, “is that the best HR metrics are reported directly alongside other financial and business data. If you put HR metrics in a separate report, it is unlikely that anyone outside HR will spend much time reading it.”
6. Go hard. Yes, we know, so-called “soft” assets like a strong workplace culture or employee satisfaction bring hard business results. Human capital may be “soft” but it’s an asset that doesn’t depreciate and, in the right environment, keeps getting better. Senior executives already know that, says Sullivan. He can’t think of a single executive in any country who isn’t aware of the significant impact people-management activities have on business results. But he says many get frustrated with HR’s idea of metrics.