1 Develop a mechanism to measure the overall effectiveness of people management practices of an organization. 2 Measure the effectiveness of your organization HR practices 3 How do you show HR’S contribution or value made to overall organizational outputs? Introduction “Measurement is the first step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you cant control it, you cant improve it. ” H. James Harrington.
Peter Drucker was also quoted as saying that, “If you cant measure it, you cant anage it” The fact remains that you need to know your current state of performance before you can look at means to improve it. Measurement provides you with information on the status of any performance. It represents a feedback mechanism, indicating what’s working well and what isn’t. But the trick lies in figuring out exactly what it is you need to measure. You don’t want to be measuring the wrong thing. Taking in too many indicators could result in losing sight of the objective of measurement.
What if you’re using the same measurement to evaluate performance across many levels – surely, the measurement needs to be varied. There are many tools available, from the Balanced Scorecard to the tools to measure Return on Investment (ROI), etc. , nevertheless no single tool fits all organisations and may vary depending on whether you’re considering the private or public sector / type of industry / and type of business. While similar concepts of measurement may apply, the indicators are sure to vary, sometimes requiring customisation and some degree of alignment to the enterprise-level performance.
It becomes a requirement for every modern HR department to show the organizational value of money and time spent on human resources management training and activities. For human resources to be effective, they must be the accurate metric and aligned with business objectives. HR’S challenge is to provide business leaders with actionable information that helps them make decisions about investments, marketing strategies and new products. HR metrics are a vital way to quantify the cost and the impact of employee programs and HR processes and measure the success / failure of HR initiatives.
They enable a company to track year-on year-trends and changes in these critical variables. It is how organizations measure the value of the time and money spent on HR activities. Theses HR statistics represents is a comprehensive analysis of key indicators focused on the HR structure, HR processes and activities, financial expenses, and time spent by an organisation. It seeks to provide detailed information on the effectiveness and efficiency of an organisation’s HR management system in comparison to the overall organisational performance. In essence, HR metrics portrays the HR function’s contribution to the organisation.
As a method of quantifying the impact of HR, its programmes and activities, it includes both leading (future predictors) and lagging historical/financial) indicators. HRM Researches have varied in the level of analysis of the performance measures they emphasized. While traditional HRM research has generally focused on individual level outcomes such as Job performance, Job satisfaction and motivation and in more strategic approach would be to unit or firm level outcomes related to labour productivity, sales growth, return on assets (ROA) and return on investments (ROI) and market based performance.
These level of performance can be further be differentiated by department level, business unit level ans as company level performance measures. Mechanism However, based on experience and industrial socialization, I have found that many HR practitioners are skeptical in embarking on HR metrics. HR functions often collect data on their efficiency, but not on the business impact of their programmes and practices. This is a crucial point because HR organisations that collect effectiveness data are more likely to be strategic partners.
If HR wants to play a strategic role in organisations, then it needs to develop its ability to measure how human capital decisions affect the business and how business decisions affect human capital. Human Capital is very important to organization because they are the people who actually working for the organization. They build company’s core competencies and competitive advantages to the organization. With effective management of the Human Capital, company can achieve the maximum outputs from its own human capital and be superior than other competitors.
Key measures of the organization effectiveness will be Revenue per employee, cost per employees, profit per employee and Human Capital Return on Investment. In order to measure the overall effectiveness my approach will be to further cascade it to dependent measures Linking To Business Results Intent of HR statistics is not Just to evaluate the HR function effectiveness or efficiency but to link the metrics to the overall business performance. Each of the measurements or indicators, which are components of the HR have significant links to the business operations. or an Example, time-to-hire measures. The shorter the time-to-hire, the faster the new employee will be contributing to the function he has been hired for. This will increase departmental productivity which thereafter leads to overall business performance. Similarly, considering the training investment on mployees; If the organisations are willing to spend more on employee training, then employee productivity will grow. Where it must be an investment on appropriate training; there are organizations that invest in inappropriate training interventions and expect phenomenon changes in business.
Each of these measures are that form the HR metrics contributes to the overall business performance either directly or in- directly. HR practices have its most immediate impact on employees since the employee outcomes such as turnover, absenteeism, Job satisfaction, commitment and motivation are in the closer line of sight to HR practices. This level is has a closer relationship and it’s more of a due to certain actions as most of HR practices have a strong effort on such employee outcomes. These outcomes can be also used to some extent as an initial goal in designing HR practices.
There are many common measurements including turnover ratio, time-to-hire, average remuneration etc. These measurements can be categorised into the following areas: Financials Productivity Compensation and benefits Resourcing Learning and development Behaviours which includes turnover rate and absenteeism Workforce structure In developing a measurement to analyse the effectiveness of HRM function and rocesses in the organization Data integrity plays a key role. Therefore, all of the above are important; to gain positive impact to the HR metrics where we have to measure all categories.
However, this process involves in data gathering, validation and performing in-depth analysis. As someone from within the HR profession and having performed a fair number of HR health-checks and consultation in numerous organisations, it is fact that the HR practitioners need to improve their business analytical skills. They need to ensure that the HR function has a proper HR Information System (HRIS) that captures the ight information for analysis in order to ensure data integrity. It’s all about having the right data on time.
When analyzing the various HR related statistics, HR needs to chart the entire process, capturing external factors, internal involvement, time to perform each process and eventually dictating a proper service level agreement for hiring etc. If HR can remain transparent, objective and clearly articulate the process challenges, the stakeholder engagement will be better as the time-to-hire matrices would have been charted with the right considerations. Most times, the failures in ime-to-hire measurements are due to unrealistic commitments made without scrutinizing the processes.
One also cannot forget the external environmental and in particular, the economic conditions which may over-ride your existing processes. Time to hire however, is Just one component of resourcing. There are more comprehensive matrices that relate the effectiveness of hiring function by:- External recruitment rate External replacement rate Cost per hire Time to accept Time to start Acceptance rate Graduate recruitment rate Graduate retention rate No-show rate Internal appointment rate
Internal promotion rate Comparing this with ROI on training initiatives. Investment in employee training is another key contributor to an individual employee’s productivity and the overall organisational performance. Many HR practitioners are indeed skeptical about measuring training ROI and claim that it’s not possible or even difficult. But really, this is more a case of ignorance of the measurement tools rather than difficulty.
Evaluation measures for training effectiveness were conceptualised by Kitpatric, who introduced the four levels of evaluations as below: Level 1 – Reaction (Evaluate the rainees’ reaction to the programme) Level 2 – Learning (Test the skill and knowledge gained by the trainee) Level 3 – Behaviour Application (Evaluate changes that are observed of the trainees ‘ behaviour post-training) Level 4 – Business impact (Measure the change in the productivity level of the trainee) The ROI on training includes frequency of training, hours of training, investment on training by FTE, span of coverage by the L&D function and many more.
Learning and development (L&D), L&D investment per FTE, L&D investment per compensation and training cost per FTE (internal/external) will complement the ROI on any training as well. easurement model The measurement model applies measurement and benchmarking methodology which incorporates both tangible and intangible aspects of people and people management, bridging the gap between HR inputs and processes, and business outcomes. It advocates treatment of human capital as any other organisational asset.
It provides an avenue for human capital measurement and paves the way to actually realise the true meaning of the overly-used phrase “human capital is our most valuable asset” of the organisation. This model links and aligns HR strategies to the business strategies. It is very useful for organisations to evaluate their current human capital positioning at various levels. At the most basic level, it evaluates the alignment of business goals and people related action. It provides clarity. Best practices within the organization provide information on inter-departmental process efficiency and effectiveness.
The next benchmarking level looks at an external comparison which provides insight on the organisation’s positioning as a whole within the parameters evaluated with relevant industry. It also provides market positioning information, useful for strategic intervention based on the future irection set by the management. This mechanism focuses on a number of areas including effectiveness of HR programme and HR delivery. The metrics measured in the model allow the management of an organisation to have better insight into their workforce efficiency and effectiveness and establish proper monitoring and control mechanisms.
These metrics are focused on specific areas and allows the right interpretation of the workforce; – productivity level – efficiency and effectiveness of processes and systems in place, – the workforce contribution to the unit costs and the output level. accountability framework for key personnel, including HR. The framework incorporates three key workforce metrics namely, return on workforce investment, workforce productivity and unit costs. It also measures the key levers of these metrics.
In terms of effectiveness of HR program’s intervention, impact, satisfaction and cost should be taken into consideraion. A focus on effectiveness here is on whether the HR programmes and practices have the intended effect on the people or talent pool toward which they are directed. In the case of training and development, for example, true effectiveness metrics should ffer information on whether employees build needed skills . It should look not Just at participation in the training programmes but also consider employee and management satisfaction with the training provided.
If one is to measure only the participation in HR programmes, it really offers no insight into the effectiveness of the programme. Here the measurement would merely be at the gut level. Post training formalities could complement this process. Employee satisfaction surveys can be used as a tool to gauge the alignment between HR services and the opinions of HR’S customers (mainly the internal customers), they o fall short of providing the needed insight into the impact of the training programme itself, for example.
Sample HR effectiveness measures “Employee turnover” metrics Cost per Hire Turnover Cost Turnover Rate Time to Fill Length of Employment HR performance: “Recruiting” metrics:??? Vacant Period New Hires Performance Appraisal Hiring Manager Satisfaction Turnover Rates of New Hires Financial Impact of Bad Hire HR performance: “Retention” metrics:??? Overall Employee Turnover Preventable Turnover Diversity Turnover Financial Impact HR performance: “Training and development” metrics:???
Learning and Growth Opportunities On-the-Job learning Content Opportunities for New Hires In terms of measuring the effectiveness of HR service delivery, concerning the efficiency of the HR function. In particular, it looks at how well the HR function performs its basic administrative tasks. The metrics that can be collected in order to assess HR efficiency include productivity and cost metrics for the HR function such as time to fill open positions, HR headcount ratios, and administrative cost per employee.
A comprehensive set of metrics are available to analyse this. This model give feedback from HR stakeholders. The three components within shareholders are: HR partnering – evaluates the perceived contribution of HR Business Partners People Processes – evaluates how well the people related process is executed HR approach – evaluates the perception of the working style of HR function. The above 3 components consist of a list of questions which is administered to all stakeholders for their feedback.
A key measure of HR effectiveness is the HR Ratio (HR-to-employee ratio). This ratio has to be interpreted correctly or risk controversy. The ratio varies with the nature of industry, the HR delivery model of the organisation as well as the ize of the organisation. References How to Measure Human Resource Management(2002) by Jac Fitz-enz Kavanagh, M. J. & Thite, M. (2009). Human Resource Information Systems: Basics, Applications, and Future Directions. Thousand Oaks: Saga Publications, Inc.
Lawler Ill, E. E. , Levenson, A. , & Boudreau, J. W. (2004). HR Metrics and Analytics: Use and Impact. Human Resource Planning, 27(3): 27-35. Lawler Ill, E. E. , Levenson, A. , & Boudreau, J. W. (2004). HR Metrics and Analytics: Use and Impact. Human Resource Planning, 27(3): 27-35. Kavanagh, M. J. & Thite, M. (2009). Human Resource Information Systems: Basics, Applications, and Future Directions. Thousand Oaks: Saga Publications, Inc. Lockwood, N. (2006).
Maximizing Human Capital: Demonstrating HR Value With Key Performance Indicator . HR Magazine, 51(9): 1-10. Lockwood, N. (2006). Maximizing Human Capital: Demonstrating HR Value With Key Performance Indicator . HR Magazine, 51(9): 1-10. Lockwood, N. (2006). Maximizing Human Capital: Demonstrating HR Value With Key Performance Indicator . HR Magazine, 51(9): 1-10. Performance Indicator . HR Magazine, 51(9): 1-10. The Future of HR and Strategic HR Metrics for a Global Organization, by Dr. John Sullivan