Nicholas J Higgins
founder and chief executive, Valuentis
Measured approach to risk avoidance
If HR wishes to have strategic ‘clout’ then it has to ‘do measurement’ and ‘do measurement’ well. If it doesn’t, it won’t. Here’s why. People are simultaneously assets, resources and potential liabilities. HR is a corporate function with two main objectives: optimising people performance and minimising operating risk.
This is no small feat, which is why HR faces such a challenge. And neither of these objectives can be achieved without measurement.
Without it, optimising people performance becomes an impossible concept to realise, with the danger of either over- or under-investment in people management practice and/or people development. Minimising operating risk without measurement means HR is perpetually reacting to events rather than proactively avoiding them.
Lack of focus
For example, lack of a focused retention strategy, which uses a specific set of human capital metrics, leads to potential loss of talent. This can manifest itself in many ways, for example, loss of sales, poor product design, inadequate decision making, client/customer delivery. This can result in poor organisational performance or an increased risk of an operational default such as the loss of a major client or wasted resource allocation.
At boardroom level HR has to present commercial arguments with commercial data, ie measures which inform and have an impact on managerial and, ultimately, strategic decision-making.
But there are those who advocate that HR can’t, shouldn’t or doesn’t need to measure. They argue that HR can be a strategic partner because it can deliver to the ‘business/organisation need’. To strengthen their argument, they point out how poorly human capital is currently being measured. However, this is the central weakness in the same argument.
The big stuff
Organisations are, in the main, still reporting HR operating metrics rather than human capital measurement – in other words a focus on the small stuff at the expense of the big stuff. Why?
Most metrics around HR activities (such as service delivery, recruitment, training, payroll) are mostly about operational efficiency and have little to do with human capital reporting. A human capital management project would focus on areas such as turnover, employee engagement and absenteeism, and combine them with financial metrics to provide meaningful reporting data.
Senior executives and HR professionals must realise that monitoring performance and return on investment in their people requires a degree of measurement. They cannot solely rely on ‘senior relationships’ or ‘a seat on the board’.
Other corporate functions – such as finance, marketing and IT – all have strategic measurements. Why should HR be any different?
group director of HR, DSG International
Numbers game only adds to confusion
It has been argued that the omission of reporting on employee matters in the operating and financial reviews (OFRs) in company annual reports sidelines HR as a strategic function. I disagree. The HR profession has come to a sorry state if it stakes its reputation on the blunt instrument and the strictures of regulatory compliance. And at a time when many businesses are being throttled by red tape, it is ironic that the HR profession is volunteering for more.
The Accounting for People taskforce concluded that measuring human capital through one set of metrics would not work. Now, the Investors in People accreditation body is to develop a generic set of employee measures for company reports, believing that it must be possible to come up with a consistent set of metrics that define the performance of the HR function.
Using OFRs to communicate performance on issues critical to the delivery of business strategy such as management succession, executive team development, employee engagement, productivity, staff retention or training and its impact on customer satisfaction should be a matter of relevance, not regulation.
Equally we should not confuse statistical data with the key performance indicators that are integral to the management of a business.
Businesses are dynamic organisations and measurement systems need to take account of that dynamism. It should be our responsibility to use OFRs as a means of highlighting risks and reviewing performance, but we should not be bound by a set of inflexible measures.
Uniform people measures can quickly find themselves remote from the strategy of an individual company – let alone the practical difficulties in multinational corporations of collecting consistent and accurate data across diverse business cultures. And rather than establishing HR as a true business partner with a possible seat on the board, a collection of prescribed metrics is more likely to reinforce the prejudices of those at the top – that the HR profession is filled with bureaucrats enthusiastically justifying their existence, while operating independent of real business priorities.
The HR function is better employed in providing leadership on people matters as a means of delivering competitive advantage. That is where value is added. Frankly, the only value creation that statutory people metrics will deliver is to consultancies and academics.
I believe we should resist demands for a common set of employee metrics in the annual report. HR is increasingly becoming central to every management decision, reflecting the pivotal role of people in the delivery of business objectives. Playing the numbers game won’t raise the profile or improve the performance of the HR profession; nor will it secure HR’s place as a strategic business partner to the chief executive.