Quantify HR Success with Helpful Metrics
The most significant difference between the best human-resources departments and the average ones is that the best have developed extensive research and people-measurement efforts to track the effectiveness of programs, an authority on HR issues said at a recent audio conference.
"Failing to utilize metrics is the primary thing that has kept HR out of the 'big leagues' and under the CFO's budget-cutting scrutiny for years," said John Sullivan, professor of management at San Francisco State University and author of "HR Metrics the World-Class Way" (Kennedy Information, 2002). The conference was sponsored by Kennedy Information, a Peterborough, N.H.-based subsidiary of BNA Inc.
Measuring the value of HR processes and showing the return on investment to the organization places the department on a path of continuous improvement and positions it as a business partner, according to Dr. Sullivan.
The 'Metric' System
A metric is an accountability tool that makes it easy to see if the company is producing results. With such measurements, competitive HR departments are able to build the business or economic case for their own work, said Dr. Sullivan.
According to the professor, most metrics have six elements: measurements of quantity, quality, time, money and satisfaction, as well as benchmark comparisons.
Metrics can change behavior by driving action to change. "What is measured gets done" is an often-repeated phrase used to underscore how numbers provide impetus to direct behavior. Metrics can be used to build competition among employees and create pressure when one department is shown to not achieve at the same levels as others.
Dr. Sullivan set out three criteria for selecting metrics:
1. Companies should ensure the metric fits the corporate culture of what is deemed important. For example, measuring the level of customer service would be important for a company such as Nordstrom Inc. If a company's culture emphasizes speed or being the first to market, it would select metrics related to time.
2. A metric should echo the critical success factors that make a company's product or service successful. HR, for example, might choose to measure the satisfaction of managers and applicants.
3. Metrics should focus on issues that are likely to be reported to the chief executive officer. Dr. Sullivan recommended that HR select strategic output metrics that have the most impact on profit, revenue or product development. In recruiting, for example, cost per hire doesn't need to be reported to the CEO. Instead, HR should measure the performance of new hires, because that has a direct impact on productivity. Other types of measures related to hiring are the new-hire satisfaction rate and dates that reflect on a company's ability to meet deadlines.
HR can use data the company's information-technology and human resource information systems already have available, and draw measures of progress from this information.
Boiling Things Down
With metrics in hand, HR can compare its findings with standards through benchmark information provided by such sources as the Society for Human Resource Management/BNA annual survey on the subject, HR Department Benchmarks and Analysis.
Comparison numbers for particular companies can be obtained, but asking other employers for this valuable information isn't always successful, said Dr. Sullivan. Instead, HR pros should ask to trade information with them, provided the companies aren't competitors. Suppliers and customers might be more willing than other companies to make such exchanges.