If you wanted to make your car go faster, it would be very strange if the main performance measure you looked at was how much you spent on petrol.
Although the cost of petrol would be quite an interesting statistic, it’s largely irrelevant to any measure relating to speed. Even if you examined factors that might influence speed, such as tyre pressure and wind drag (the inputs), they would still fail to tell you about the ultimate performance outcome you’re interested in.
No, without a doubt, the key thing you need to measure is the speed of the car in miles or kilometres per hour, for which you would look at the speedometer.
I hope we can agree that this is logically beyond argument. So why is it that, in business, we still persist in measuring so many irrelevant inputs, rather than the performance outcomes that really matter?
Benchmarking has much to answer for in this respect. It’s relatively easy to obtain data for comparing ‘input’ measures, and HR seems to delight in comparing the cost of training, cost of recruitment, staffing ratios, and so on, as somehow being indicative of doing good HR work.
Many organisations have even formed communities for sharing information, especially in the public sector. However,
while benchmarking may tell us something about process efficiency, it reveals nothing about real business outcomes. Without too much trouble, an organisation can analyse itself and conclude, for example, that it is operating within the top 10% of efficiency – yet, to continue our car analogy, you can have the lowest petrol costs, but still be the slowest car on the road. My point is: we’ve got to measure the right things, not just focus on what’s easy.
Before we can decide what to measure, we need more clarity on what HR is in business to do.
If we believe HR solely exists to deliver cost-effective administrative services, then clearly cost, speed and quality of delivery are the outcomes we are interested in, and our input measures need to reflect that (ie, sometimes it’s right to look at the cost of petrol). But if we also believe that HR is there to help create the conditions where the business can derive the best contribution from people, these simplistic input measures will not help us. It’s surely far more important to measure how the outcomes of HR have an impact on the wider business performance.
Take the example of recruitment. If you want to hire the best people available in the market, the cost of recruitment is one of the inputs, but what really counts is the outcome of recruitment – such as the long-term performance of the people hired, their future potential and their development needs.
If cost is our main or only measure, the temptation will be to drive down costs at the expense of performance. Likewise, focusing on the cost of training programmes is unhelpful. And unless we can describe the value they add to the human capital of the organisation, training budgets will continue to be the first casualty when times are hard.
There’s a risk that HR is currently building a small industry based on measuring infinitely irrelevant inputs. With the latest generation of HR analytical tools, we can now record, track and cross-relate any piece of data to any other. Yet, all this data is meaningless without corresponding data on the ultimate outcomes we’re interested in – we risk knowing the price of everything and the value of nothing.
We’re just going to have to work harder to develop metrics that describe performance outcomes, even if they seem too intangible. Otherwise, how else will we know that our interventions are working or what the priorities should be?
By Steve Foster, manager, HR business strategy, Northgate HR
For more on human capital management, listen to the Personnel Today podcast in association with Northgate HR.