Metrics for HR Measurement A sound metrics programme for better organisational decision making and impact by Muhammad Imran

Kunalan HR metrics at its most fundamental is about measurement and control. And through the ages, we e heard many wise words on this topic. !Measurement is the first step that leads to control and e entually to impro ement. If you can"t measure something, you can"t understand it. If you can"t understand it, you can"t control it. If you can"t control it, you can"t impro e it.# $o argued H %ames Harrington. &eter 'rucker was also (uoted as saying that, !If you cant measure it, you cant manage it#. )he fact remains that you need to know your current state of performance before you can look at means to impro e it. Measurement pro ides you with information on the status of any performance. It represents a feedback mechanism, indicating whats working well and what isnt. *ut the trick lies in figuring out e+actly what it is you need to measure. ,ou dont want to be measuring the wrong thing. )aking in too many indicators could result in losing sight of the ob-ecti e of measurement. .hat if youre using the same measurement to e aluate performance across many le els / surely, the measurement needs to be aried somewhat0 )here are many tools a ailable, from the *alanced $corecard to the Return on In estment 1R2I3 method. *ut no single tool fits all organisations and may ary depending on whether youre considering the pri ate or public sector. .hile similar concepts of measurement may apply, the indicators are sure to ary, sometimes re(uiring customisation and some degree of alignment to the enterprise4le el performance. .hat HR metrics represents is a comprehensi e analysis of key indicators focused on the HR structure, HR processes and acti ities, financial e+penses, and time spent by an organisation. It seeks to pro ide detailed information on the effecti eness and efficiency of an organisations HR management system in comparison to the o erall organisational performance. In essence, HR metrics portrays the HR functions contribution to the organisation. As a method of (uantifying the impact of HR, its programmes and acti ities, it includes both leading 1future predictors3 and lagging 1historical5financial3 indicators. HR metrics was conceptualised by 'r %ack 6it74en7, the founder of the $aratoga Institute, now known as &.84$aratoga. )he HR indicators conceptualised by $aratoga are comprehensi e and benchmarked against rele ant industries as well. 9sing an empirically erified measurement model of performance in HR management based on data from :;,<<< companies, the outcomes from the benchmarking e+ercise are as follows= Indicati e HR management strategy priorities >ffecti eness of HR function Indicati e of the best methods, HR concepts and best practises within HR functions HR process control 2ptimal HR staffing ratio

Howe er, based on e+perience, I ha e found that many HR practitioners are sceptical in embarking on HR metrics. HR functions often collect data on their efficiency, but not on the business impact of their programmes and practices. )his is a crucial point because HR organisations that collect effecti eness data are more likely to be strategic partners. Its not doing for doings sake but about real results. If HR wants to play a strategic role in organisations, then it needs to de elop its ability to measure how human capital decisions affect the business and how

business decisions affect human capital. )he table below is a sample of indicators used as HR Metrics by &.84$aratoga.

Source: PWC-Saratoga

Linking to business results $o, how do we ensure that arious measures employed are linked to business results0 .ell, the intent of HR metrics is not -ust to e aluate the HR function effecti eness or efficiency but to link the metrics to the o erall business performance. >ach of the measurements or indicators, which are components of the HR metrics ha e significant links to the business operations. ?ets take time4to4hire measures, as an e+ample. )he shorter the time4to4hire, the faster the new employee will be contributing to the function he has been hired for. )his then translates to increased departmental producti ity which thereafter leads to o erall business performance@ $imilarly, consider the training in estment per employee. 2b iously if the organisation is willing to spend more on employee training, then employee producti ity will grow as well. *ut it must be in estment in the right sort of trainingA there are companies which in est in wrong training inter entions and e+pect miracles. I am positi e that each of the measures that forms the HR metrics contributes to the o erall business performance either directly or in4directly. )here are many common measurements including attrition rates, time4to4hire, cost per 6)>, a erage remuneration etc. )hese measurements can be categorised into the following buckets= 6inancials &roducti ity 8ompensation and benefits Resourcing ?earning and de elopment *eha iours which includes attrition rate and absenteeism

.orkforce structure

Data integrity is key In my opinion, all of the abo e are important and to gain positi e impact of the HR metrics, we ha e to measure all. Howe er, this is not easy since the process in ol es data gathering, alidation and performing in4depth analysis. As someone from within the HR profession and ha ing performed a fair number of HR health4checks and consultation in numerous organisations, I belie e that HR practitioners need to impro e their business analytical skills. )hey need to ensure that the HR function has a proper HR Information $ystem 1HRI$3 that captures the right information for analysis. Its all about ha ing the right data. $o in summary, if possible, carry out all those measures. Howe er, if youre limited in terms of data access, then focus on the (uick wins so that you can showcase these to management to garner support for better data access. Keep in mind that some organisations may regard the o erall financial information as confidential which will impact on your ability to perform those measures that need financial information. Almost all of the matrices buckets highlighted abo e are useful to the organisation as a whole. )hese measures are not meant to glorify HRs rele ance but ser e to relate the Human 8apitals 1H83 contribution to the o erall organisational performance. *ut I cannot stress further the importance of data integrity. If you do not ha e a proper HRI$ from which the data4mining is done for analysis, than you can forget about HR metrics. *ut ha ing a state4of4the4art HRI$ is only side of the e(uation / how alid and accurate the data in the system is actually the prime concern when we look at measurement. And there are at least two things you can do to preser e data integrity. 6irstly, take responsibility and ownership. 8ontinuously monitor and perform alidation checks on the data. )here is no short4cut to alidation other than performing periodic data sanity checks. )his may in ol e engaging each and e ery department and e en e ery indi idual in the organisation to perform data cleansing. )his needs passion@ $econdly, I cannot emphasise any further the importance of a reliable HRI$ with accurate data. )here is a compelling need for HR to engage the business functions and demonstrate the importance of ha ing the right data. Bow, when one starts to look at metrics in detail, the critical issues come to the fore. )ake time to hire as an e+ample. .hat is the critical issue here0 Hiring or resourcing is one of the key functions of HR. HR may be mandated to manage the entire end4to4end resourcing in the ma-ority of organisations. ,ou need to analyse the entire process and all the steps in resourcing. In most cases, there is a fair share of line5functional in ol ement in resourcing especially when hiring for -obs that may need specific technical e+pertise. HR needs to chart the entire process, capturing e+ternal factors, internal in ol ement, time to perform each process and e entually dictating a proper ser ice le el agreement for hiring. If HR can remain transparent, ob-ecti e and clearly articulate the process challenges, the stakeholder engagement will be better as the time4to4hire matrices would ha e been charted with the right considerations. Most times, the failures in time4to4hire measurements are due to unrealistic commitments made without scrutinising the processes. 2ne also cannot forget the e+ternal en ironmental and in particular, the economic conditions which may o er4ride your e+isting processes. )ime to hire howe er, is -ust one component of resourcing. )here are more comprehensi e matrices that relate the effecti eness of hiring function by=4 Resourcing >+ternal recruitment rate

>+ternal replacement rate 8ost per hire )ime to accept )ime to start Acceptance rate Craduate recruitment rate Craduate retention rate Bo4show rate Internal appointment rate Internal promotion rate

8ompare this to say, R2I on training initiati es. In estment in employee training is another key contributor to an indi idual employees producti ity and the o erall organisational performance. Many HR practitioners are indeed sceptical about measuring training R2I and claim that its not possible or e en difficult. *ut really, this is more a case of ignorance of the measurement tools rather than difficulty. > aluation measures for training effecti eness were conceptualised by Kitpatric, who introduced the four le els of e aluations as below= ?e el : / Reaction 1> aluate the trainees reaction to the programme3 ?e el D / ?earning 1)est the skill and knowledge gained by the trainee3 ?e el E 4 *eha iour Application 1> aluate changes that are obser ed of the trainees F beha iour post4training3 ?e el G / *usiness impact 1Measure the change in the producti ity le el of the trainee3

)he R2I on training does not stop there. 2ther measures includes fre(uency of training, hours of training, in estment on training by 6)>, span of co erage by the ?H' function and many more. ?earning and de elopment 1?H'3, ?H' in estment per 6)>, ?H' in estment per compensation and training cost per 6)> 1internal5e+ternal3 will complement the R2I on any training as well. The Saratoga measurement model )he $aratoga 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 ad ocates treatment of human capital as any other organisational asset. It pro ides an a enue for human capital measurement and pa es the way to actually realise the true meaning of the o erly4used phrase !human capital is our most aluable asset# by many organisations. )he $aratoga model links and aligns HR strategies to the business strategies. )he $aratoga methodology of benchmarking is, I belie e, ery useful for organisations to e aluate their current human capital positioning at arious le els. At the most basic le el, it e aluates the alignment of business goals and people related action. It pro ides clarity. Mo ing up another le el, it looks at a comparison of best practices within the organisation. It pro ides

information on inter4departmental process efficiency and effecti eness. )he ne+t benchmarking le el looks at an e+ternal comparison which pro ides insight on the organisations positioning as a whole within the parameters e aluated with rele ant industry players. It also pro ides market positioning information, useful for strategic inter ention based on the future direction set by the management. In truth, I ha e to admit, that the benchmarking database support pro ided by $aratoga is ery impressi e since it cuts across multiple industries and regions. )his Model is said to focus on a number of areas including HR programme effecti eness and HR deli ery effecti eness. )he metrics measured in the model allow the management of an organisation to ha e better insight into their workforce efficiency and effecti eness and establish proper monitoring and control mechanisms. )hese metrics are focused on specific areas and allows the right interpretation of the workforce producti ity le el, efficiency and effecti eness of processes and systems in place, the workforce contribution to the unit costs and the output le el. It also establishes an accountability framework for key personnel, including HR, within the organisation. )he framework incorporates three key workforce metrics namely, return on workforce in estment, workforce producti ity and unit costs. It also measures the key le ers of these metrics. In terms of HR program effecti eness, we are looking here at inter ention, impact, satisfaction and cost. A focus on effecti eness here is on whether the HR programmes and practices ha e the intended effect on the people or talent pool toward which they are directed. In the case of training and de elopment, for e+ample, true effecti eness metrics should offer information on whether employees build needed skills . It should look not -ust at participation in the training programmes but also consider employee and management satisfaction with the training pro ided. If one is to measure only the participation in HR programmes, it really offers no insight into the effecti eness of the programme. .hile satisfaction sur eys can be a useful tool for gauging the alignment between HR ser ices and the opinions of HR"s customers, they do fall short of pro iding the needed insight into the impact of the training programme itself, for e+ample. Sample HR effectiveness measures Employee turnover HR performance Recruiting metrics ! metrics Iacant &eriod 8ost per Hire Bew Hires &erformance Appraisal )urno er 8ost )urno er Rate )ime to 6ill Hiring Manager $atisfaction )urno er Rates of Bew Hires

6inancial Impact of *ad Hire ?ength of >mployment HR performance HR performance Training and Retention metrics ! development metrics ! 2 erall >mployee )urno er &re entable )urno er 'i ersity )urno er 6inancial Impact ?earning and Crowth 2pportunities 2n4the4-ob learning 8ontent 2pportunities for Bew Hires

In terms of HR ser ice deli ery effecti eness 56)> Ratio, this actually concerns the efficiency of the HR function. In particular, it looks at how well the HR function performs its basic administrati e tasks. )he metrics that can be collected in order to assess HR efficiency include producti ity and cost metrics for the HR function such as time to fill open positions, HR headcount ratios, and administrati e cost per employee. A comprehensi e set of metrics are a ailable to analyse this. )he $aratoga Model also incorporates !the Ioice of 8ustomer# 1I283 sur ey to get direct feedback from HR ser ices stakeholders. )he three components within I28 are= HR partnering 4 which e aluates the percei ed contribution of HR *usiness &artners &eople &rocesses 4 which e aluates how well the people related process is e+ecuted HR style 4 which e aluates the perception of the style of working by the HR function.

)he abo e components consists of a list of (uestions which is administered to all stakeholders for their feedback. )he results are then benchmarked with the e+isting sur ey repository of $aratoga that enables the organisation to ha e a comparison of their results with others within the same industry. A key measure of HR effecti eness is the HR Ratio 1HR4to4employee ratio3. )his ratio has to be interpreted correctly or risk contro ersy. )he ratio aries with the nature of industry, the HR deli ery model of the organisation as well as the si7e of the organisation. )he following is the a erage HR4to4employee ratio deri ed from the $ociety for Human Resource Management 1$HRM3 Human 8apital *enchmarking $tudy based on organisational si7e as a baseline indicator. "rganisation Si#e $no% of employees& 6ewer than :<< :<< to DGK D;< to GKK ;<< to KKK :,<<< to D,GKK D,;<< to J,GKK J,;<< or more HR'(TE Ratio D.J :.DL :.<J <.MD <.JK <.;E <.GD

As you can see, there is a lot of information a ailable on HR metrics and measurement. My ad ice to HR practitioners will be for them to do some thorough analysis and research on this area before embarking on this initiati e. I wish to record my thanks to Mr. Richard &helps of &.84$aratoga, 9K for the guidance gi en on HR Metrics during my short stint in the 9K.