How can HR prove it really adds value?

The desire to be “strategic” has engulfed many HR departments. Usually what they mean by this is the deployment of their professional knowledge and skills, working with managers, to do things that will improve the organisation in some way. Personally, I prefer the use of the term “adding value” because it focuses the mind on the outcome of HR’s contribution. Or, at least,  it should do – but instead, it is often used itself in a vague sense of doing something beyond the necessary administrative tasks.

A previous article in this series looked at how workforce analytics could provide a measure of the impact of HR’s activities. But before you can measure the “added value” of HR you need to define what you mean by the expression.

Just saying “adding value” is an incomplete phrase because we need to state to what or whom value is added. When challenged, people often say “to the organisation”. But it needs to be more focused than that. All organisations are created to provide value, or benefits – financial and/or non financial – to their stakeholders.

Our starting point should be to identify the stakeholders in an HR function. The three most important will normally be internal: senior management, line managers and employees. There are others, and their importance will vary. They may include the local community, educational institutions, suppliers, trade unions, outsource partners, or other internal support departments. A subsidiary or division will need to meet the requirements of the central or HQ HR function, and in the public sector there may be specific HR policy directives to be satisfied.

So how can you define and measure the added value of HR?

First steps for HR when adding value

As with all measures, we do not need to adopt every possible option available. We should determine priorities as far as possible through identifying which stakeholders are the most strategically important, and for each the areas of value added that matter most. So this first step is to define the nature of the value or benefit that is added through the activities and initiatives of HR.

It is often forgotten that the concept of stakeholders is not unilateral – it is one of mutual interest. There is an exchange of value. For employees or outsourced partners, for example, we have a written statement of obligations and expectations for either side. This is less well defined for other stakeholders. If we think about how an HR function adds value to managers, there is a parallel question of how managers add value to HR. A dialogue around “expectations” is needed where the two types of value are discussed and defined. This might sound an impossible thing to do when HR’s stakeholders are made up of many individuals, but we can use surveys with carefully worded questions.

What do stakeholders expect from HR?

What kinds of expectations will emerge? We would expect senior management to be concerned with areas such as costs and efficiency, reputation, leadership development, culture and values, and supporting the business strategy with appropriate people strategies. We then have to ask what measures of these can we reasonably use, how often will they be measured and what is our target or level of expectation? Examples of measures on each of these would be:

• Costs and efficiency – cost of HR service per employee, process times, accuracy per 100 transactions, absenteeism levels.
  
• Reputation – employee brand data, league tables, awards, positive press comments and lack of the opposite.
  
• Leadership development – investment levels, productivity improvements, internal succession bench strength.
  
• Culture and values – surveys, 360 feedback, customer perceptions, OD interventions, training coverage.
  
• Strategy – senior management judgement.

What about the reverse expectations? HR has a right to expect support from senior management in its programmes and initiatives – mainly in communication and participation. Levels of these can be agreed with the senior management team.

How can HR add value to line managers and employees?

A second stakeholder group is line managers generally. Some of the ways in which HR adds value to them include administrative services, professional advice, meeting recruitment needs in a timely manner, working with issues of motivation and engagement, providing learning solutions and helping employees develop as individuals. In return, HR has legitimate expectations. They will expect managers to play their agreed part in processes and procedures, and to see people management as a natural part of their role. Measures here would include:

• Service and advice – regular (six monthly) short surveys, response times.
  
• Recruitment – time to recruit, cost to recruit.
  
• Motivation and engagement – trends in standard data such as labour turnover, engagement levels, absenteeism; analysis of causes behind each.
  
• Learning and development – investment levels, participation, effectiveness as appropriate on specific programmes.
  
• Personal development – individual dialogue.

Employees receive value from salaries, bonuses, policies, benefits, security, communications and training/development – items covered in a typical employment survey. Every employee has different perceptions of what is valuable to them personally, but we have to work with collective perceptions. There may be specific initiatives through the year that deserve a focused feedback evaluation to assess whether the intended value has been received.

Employees are within an added value triangle of line management and HR, neither party having exclusive influence on the value received. This should be the essence of partnership. Not every employee may be blessed with a skilled people manager, and some managers need more support than others – but can they still receive excellent people management with the involvement of HR?

HR professionals do sometimes agonise about whether or not the added value they are able to give is understood or appreciated. Often, it is not, especially where the historical perception of HR is one of an administrative machine. The dialogues we have discussed above can, however, lead to that understanding. They can also show HR functions what others regard as important, and lead to higher expectations than before. This may create some uncomfortable challenges. For, when agreement is reached, we have to ask whether or not the capability to deliver exists – for the HR function on one side, and for the stakeholder group on the other. Coaching and/or training may be needed, especially for line managers.

It will be clear from the above that analysing the areas of added value from HR forms a significant contribution to a framework for HR metrics. It does not provide all that is needed, but it is a sound starting point. It should give confidence to HR professionals of their potential contribution. And, as they have clarity about which activities are value adding, periodic time analysis studies will show what percentage of time is spent there as opposed to routine work and problem solving – which are still necessary activities of course. That ratio of value added time to total time is probably the best measure of productivity in a function such as HR.

Andrew Mayo is the author of “Human Resources or Human Capital?“. Whether public or private, successful achievement depends first on the capability of people and secondly on their commitment and productivity. Andrew Mayo’s book discusses how you can ensure the most effective management of these value creating assets.