HR metrics measured

first_img Previous Article Next Article HR metrics measuredOn 1 Dec 2001 in Personnel Today Related posts:No related photos. Comments are closed. ThreeHR directors talk about how they measure HR value within their firmsTheuse of metrics can be a key driver in securing HR’s desired seat at the boardtable. Lance Richards explainsGlobally,HR functions are in the midst of a battle for presence and respect at boardlevel. One of the primary tools at our disposal is the use of strong, wellthought-out metrics, metrics that reflect the value HR adds to an organisation,our contribution to the bottom line of our enterprise, and our understanding ofthe business’ priorities.Overthe last few years I have worked with the development, implement- tation andreporting of metrics at a couple of Fortune Global 500 enterprises. Mostrecently, at BCE’s Teleglobe unit, we successfully launched the use of an ASPthrough eJobs (a US-based e-recruiting firm) to support our requisition andrecruitment functions. With this tool, we were able to slice, dice and decipherour way through real-time reports, tracking data which reflected the mean timeto fill (MTTF) our positions, cost per hire (CPH), requisitions/workload perrecruiter (R/R), and efficiency of our line managers in following through oninterviews.Especiallyhelpful was eJobs’ ability to give us comparative data (blind, of course)against its other high-tech clients. With these comparators, we were able totrack our actual results against those of similar employers in our geographicalarea. With these numbers in hand, we could then report back to our executiveleadership on the efficiency of our work compared with other recruitmentcompetitors.Ona planning level, we had the ability to toggle several levers on an up-to-datebasis. If we needed positions filled more quickly, we could  add recruiters quickly, understanding thecorresponding increase in CPH. Similarly, if we needed to drive a lower CPH, wecould adjust the R/R ratio, although we could expect a corresponding slip inMTTF. Without these solid metrics at hand, we’d have been operating blindly,and without management buy-in.Interms of best practice, the use of metrics can become a key driver in securingHR’s desired “seat at the table”. For companies just introducingmetrics, it is essential that the following are included:–The metrics must be meaningful – they must track something that is important tothe enterprise, while also being clearly understood by those outside HR. Veryfew people are interested in actuarial ratios (methods used in testingcompliance of pension and other contributory plans) from benefitsdiscrimination testing. They want to know that the 50 new hires they plan willcost $5,000 each.–The metrics must be assembled carefully – it’s critical that everyone in HRunderstands what the metrics are, and why they are being tracked. You may haveto tweak the inputs over time, to ensure you are gathering data efficiently.Sometimes, too much data may be bad – if it’s extraneous, it could damage themeaning of your results. Be sure your team is comfortable with thedata-gathering work, as well as how calculations are assembled. –The metrics tracked must be launched in a non-threatening way. This means theinitial data gathering and reporting must be done with a view only to gatheringand assessing. Bear in mind most HR people are not accustomed to beingmeasured. Attaching metrics to people who deal in soft issues can beunsettling. Once the data is in place, and tracking mechanisms are clean, abase line can be established. Don’t launch this by criticising the base line;launch it by pointing and incentivising everyone towards improvement of theresults.–Global comparators must be meaningful. Be very careful before implementing aset of worldwide metrics. Comparing data points between countries is unfair insome cases, and simply meaningless in others. To look at metrics globally,examine local comparators, then compare your local performance against localnorms as a ratio. Don’t compare your business’ metrics across borders. Implementedand managed, a series of carefully designed metrics will increase the perceivedvalue of HR, focus the work of HR professionals, and demonstrate that HRunderstands the business – and is aligned with its direction. Once in place,they become a standing message that HR, like other areas of the enterprise,will stand up to the scrutiny of data. Globalisationis forcing businesses to wise up to how they measure people more effectively.Carolyn Nimmy of Cap Gemini Ernst & Young explains what the company did tohelp measure the ‘hard side’ of HR valueDuringthese tough economic times, the focus on measures is likely to get stronger asbusiness focuses more and more on what creates value.CapGemini Ernst & Young represents the living dichotomy of most modernbusinesses – it is publicly traded and driven to produce shareholder valuewhile at the same time being a services business driven by clients to createever-more value for lower cost and completely dependent on the most volatileresource known to mankind, people power. Itis this balance between drivers that has led CGE&Y to have both a verystrong P&L and HR focus and, as such, to cultivate a strong understandingof critical HR measures.Ina professional services firm, HR management is highly integrated into the roleof every line manager and engagement manager – perhaps more so than in manyother businesses. Often in the past the HR department was seen by the linemanager as business support, an administration/HR services centre looking afterthe “soft side” of business. It is this view that over the last fewyears has made CGE&Y take a look at how it could better measure the bottomline impact – or the “hard side” of HR value. Combined with this, theincrease in globalisation generated requirements for better “peoplemeasurements” at a global as well as a local level.CGE&Yhas been using several tracking methods over recent years to help put afinancial value on human resources. Among the methods utilised are The Employerof ChoiceS Index, Onboarding Success and Talent Loss, which have been designedto help managers understand their personal impact on the company. These toolsbecame even more important during the merger phase between Cap Gemini and Ernst& Young Consulting.Atthe same time as its internal HR teams have been focused on measurements thatadd value, the CGE&Y Centre for Business Innovation has been looking at thegrowing importance of non-financial measures and how market capitalisation hasbecome detached from tangible asset base value. Research CGE&Y undertookshowed that a number of non-financial drivers could account for up to 35% ofits valuation. Among these value drivers are a number of areas that HR can workto measure, the ranking of importance of these value drivers may vary byindustry – but once measurements have been tracked then it is far easier tolook at the measures and figure out what has to be done. Onbrand, for example – the employer branding can be heavily influenced by HR andmeasuring how well the brand is doing from both external sources, such asgraduate surveys, and internal sources such as employee surveys, enablecompanies to understand how well they are getting their messages across. Valuedrivers that HR can influence:–Management–Employees–Innovation–EnvironmentForthe employee, components of the value driver measurements could includediversity within the workplace, employee relations, talent attractioncapability, public reports on Best Places to Work and so on.Oneof the challenges on improving HR measurements at a global level is choosingthe right things to measure – some HR measures are heavily influenced by theregional environment. What is relevant in the US may have no relevance inFrance or Singapore. Thisrequires identifying the ones that will have the most impact everywhere andfocusing on these. Some measures are needed year on year while others may havea short-term focus to be able to prove a business case that then improves thatarea. Anotherchallenge is terminology – the need to be very clear and precise in yourdefinition of the measure you want.Rememberingthat what gets measured gets managed; let’s make sure what we measure matters.Howdo you measure the value created by human capital, seen by some as the mostvaluable asset to the business? Garret F Walker explains Mostbusiness leaders will agree that their employees, the “human capital”are one of the most important parts of their competitive advantage. Many statethis publicly in their annual reports. However, few, if any, have an effectiveprocess to measure the value created by this “most valuable” asset. Inthe next 10 years the source of competitive advantage for most business willcontinue to focus increasingly on the talent within the organisation. Theability to effectively manage this talent is becoming more critical every day. Managementmakes decisions continuously about how to invest in human capital, usually withvery little clear information about how those investments will produce a return.Whatif we could effectively manage the value created by our investments in our employees?We know now how much we pay to reward, hire and train, develop and providebenefits our employees. However, what we need to do is know where ourinvestments are most effective and valuable. Shouldwe expand our incentive pay programme? Should we outsource our safetyadministration? What is the most effective use for our training dollars? Howmuch should we spend on recruitment? Shouldwe insource, outsource or co-source employee services, buy or build executivebenchstrength? What is the cost in human capital terms to break into a newmarket? Is the acquisition target a good fit and does it add or dilute ourcompetitive advantage in terms of talent? Doour investments in employees match the strategic objectives of the business? Isthe HR organisation a partner with the business to manage our employees asassets?Toanswer these questions, management needs more information than simple costfigures. We need to track our financial results while monitoring progress indeveloping our human capital and acquiring the talent and capabilities we willneed for business success. TheBalanced Scorecard provides a system that leverages the traditional financialand efficiency measures we have available currently for HR with metrics ofperformance from three additional perspectives – customers, internal businessprocesses and learning and growth.HRChallenge & StrategyTheHuman Resource Challenge was to translate the new business strategies andtargeted business results into human capital needs. Recognising that GTE’semployees were a critical component to achieving business goals, GTE HR leadersinventoried the current skills and abilities that would provide value both inthe short-term and into the future. HR professionals then identified thecritical people imperatives necessary to grow that talent to increase the valuedelivered by the workforce. GTE would need new behaviours, actions andcapabilities to drive the business results. Tofocus the HR organisation on the achievement of these people imperatives, GTEdeveloped a new HR strategy to support the specific people requirements of thebusiness strategy. ThisHR strategy was defined in five strategic thrusts:–Talent: enlarge the talent pool, invest in employees’ development, ensurediversity–Leadership: establish a system to assess high-potential employees, providecoaching and development, establish accountability and rewards for leadershipbehaviour–Customer service & support: create an environment that fosters employeeengagement, increase business intelligence within the workforce, providesolutions to retention issues–Organisational integration: create better systems for knowledge management,union partnerships–HR capability: develop core HR competencies, identify key talent for growth anddevelopment, invest in technology, employee self-service, better understand therelationship of HR actions to business outcomes Thepeople requirements define the HR strategy that then translates into specificHR initiatives that should directly support the attainment of HR strategy.Having this clear alignment allowed us to develop a strategy map, whichillustrates the cause and effect linkage between HR strategy and businessobjectives. Using the strategy map as the guide, we are then able to evaluatethe strategic objectives in terms of measures and outcomes. Lagging measuresand leading measures, indicators of future performance.Historically,we had a difficult time communicating to the business and maintaining its focuson the investments and initiatives designed to build employee capability. Strategicskill development, leadership development and employee development programmeswere all discussed with business leaders and generally accepted as valuable.However, when financial pressure was applied, these types of programmes werethe first to go. Nowwith measures, which link leadership development with competitive capability,people can see the relationship between investing in this programme andachievement of long-term business goals. Anearly benefit of the HR Scorecard work was that it provided a process for thesenior HR team to focus on a clear and common objective and establish a commonstrategy for the HR in support of business objectives. Everyone generallyagreed on a high-level strategy, “Be a partner to the business.” However,rarely did all of the HR leadership agree on how to implement the strategybecause each person had a different opinion about what being a business partnerreally meant and who exactly the customer was. Taking strategy and translatingit into a measurement and management model gave specific and operationaldefinitions for being a business partner and targeted business customers. Measuresdo not manage and simply tracking results was not the only intended use of theHR Scorecard. The challenge to use the information provided in the scorecard totake action to influence and improve business performance was the real valueadvantage of this tool. For example, one of the most important areas to managein terms of cost is employee turnover or “churn.” Turnover,particularly within target front-line workforce centres, is critical toproductivity and expense control. High turnover results in lower productivity,higher training, staffing and occupational health costs. The impact is acrossthe board and affects business profitability.Startingin 1998, with a new disciplined process using the HR Scorecard, our HRprofessionals tracked and analysed turnover statistics, determined reasons forturnover, calculated the negative financial impact, prescribed solutions,tracked improvement trends and showed dramatic results. In partnership with thebusiness leadership in targeted call centres, significant costs were avoided byreducing the regretted turnover. Linksbetween business processes and value chains to HR actions and services wereclearly defined as the HR Scorecard became a business tool that was understoodand used across the HR organisation. Not only are human capital initiativesneeded to increase employee value delivered to the business, they arevulnerable to business process changes and the measures taken in isolation canbe misleading. Forexample, in a regional call centre, our external business measures of customersatisfaction were going downwards and accelerating. When HR reviewed themeasures from the call centre from the HR Scorecard, there was no singleindicator that showed any direct relationship to the customer satisfactionissue. However,the measures together with input and analysis with line management pointed toan issue and solution not readily apparent. TheHR metrics showed a very low cost per hire, a very quick cycle time to filljobs and an average employee separation rate. On the surface nothing unusual,in fact the staffing metrics showed a high efficiency and cost control.Drilling deeper we saw a high cost of training, a very high separation rate forshort service employees and declining employee satisfaction for long-service employees.Furtheranalysis revealed that six months beforehand, a significant expense reductioneffort was put in place for this call centre. HR responded to the requiredreduced expense by changing talent pools and reducing the investments inselection methods. This action kept costs low while bringing in applicants whowere ready to start quickly but were harder to train and keep. It was a badtrade-off. It made sense to accept a longer cycle time and more cost to ensurethe right person was put in the right job.TheHR balanced scorecard has made it possible for HR managers to understand howthey align to business objectives. They are able to explain not only what theyare tracking, but also how they are performing on essential strategies for thebusiness. Businessenvironment and the objectives and strategies will continue to evolve and HRmanagers will continue to be flexible and creative in supporting the changes.The value of the HR Scorecard as a tool is that it can get us to the new goalsand measures and through the process ensure continued learning and changemanagement.HowCGE&Y tracked valueEmployerof ChoiceS Index. Cap Gemini Ernst & Young wanted to be able to understandregion-by- region how it rated in its ambition of not just being an”employer of choice” but being the “employer of choices”and one aspect was via its employee surveys. This offered a consistent set ofquestions embedded into all its local employee surveys so that all of itspeople have the ability to respond and that these then made up the employer ofchoiceS index. OnboardingSuccess: How could CGE&Y track and value the importance of the onboardingprocess so that it could focus its managers and leaders on the importance ofquickly enabling people to become productive and, more importantly, connectingthem emotionally to the organisation.TalentLoss: Showing the link between employee dissatisfaction and their manager andthen tracking the cost of talent loss. Showing financial numbers that relate tothis seemingly soft side can help to focus line management on their role inmotivating and retaining talent.LanceRichards is the former director, Global Human Resources at Teleglobe. He is nowmanaging director of Suddenly Global, an international HR consultancy [email protected] is global director, people relationship management, at Cap Gemini Ernst& YoungGarretF Waqlker is director of the IBM Learning Centrelast_img read more