Three HR
directors talk about how they measure HR value within their firms
The
use of metrics can be a key driver in securing HR’s desired seat at the board
table. Lance Richards explains.
Globally,
HR functions are in the midst of a battle for presence and respect at board
level. One of the primary tools at our disposal is the use of strong, well
thought-out metrics, metrics that reflect the value HR adds to an organisation,
our contribution to the bottom line of our enterprise, and our understanding of
the business’ priorities.
Over
the last few years I have worked with the development, implementation and
reporting of metrics at a couple of Fortune Global 500 enterprises. Most
recently, at BCE’s Teleglobe unit, we successfully launched the use of an ASP
through eJobs (a US-based e-recruiting firm) to support our requisition and
recruitment functions.
With
this tool, we were able to slice, dice and decipher our way through real-time
reports, tracking data which reflected the mean time to fill (MTTF) our
positions, cost per hire (CPH), requisitions/workload per recruiter (R/R), and
efficiency of our line managers in following through on interviews. Especially
helpful was eJobs’ ability to give us comparative data (blind, of course)
against its other high-tech clients. With these comparators, we were able to
track our actual results against those of similar employers in our geographical
area. With these numbers in hand, we could then report back to our executive
leadership on the efficiency of our work compared with other recruitment
competitors.
On
a planning level, we had the ability to toggle several levers on an up-to-date
basis. If we needed positions filled more quickly, we could add recruiters quickly, understanding the
corresponding increase in CPH. Similarly, if we needed to drive a lower CPH, we
could adjust the R/R ratio, although we could expect a corresponding slip in
MTTF. Without these solid metrics at hand, we’d have been operating blindly,
and without management buy-in.
In
terms of best practice, the use of metrics can become a key driver in securing
HR’s desired “seat at the table”. For companies just introducing metrics, it is
essential that the following are included:
•
The metrics must be meaningful – they must track something that is important to
the enterprise, while also being clearly understood by those outside HR. Very
few people are interested in actuarial ratios (methods used in testing
compliance of pension and other contributory plans) from benefits
discrimination testing. They want to know that the 50 new hires they plan will
cost $5,000 each.
•
The metrics must be assembled carefully – it’s critical that everyone in HR
understands what the metrics are, and why they are being tracked. You may have
to tweak the inputs over time, to ensure you are gathering data efficiently.
Sometimes, too much data may be bad – if it’s extraneous, it could damage the
meaning of your results. Be sure your team is comfortable with the
data-gathering work, as well as how calculations are assembled.
•
The metrics tracked must be launched in a non-threatening way. This means the
initial data gathering and reporting must be done with a view only to gathering
and assessing. Bear in mind most HR people are not accustomed to being
measured. Attaching metrics to people who deal in soft issues can be
unsettling. Once the data is in place, and tracking mechanisms are clean, a base
line can be established. Don’t launch
this by criticising the base line; launch it by pointing and incentivising
everyone towards improvement of the results.
•
Global comparators must be meaningful. Be very careful before implementing a
set of worldwide metrics. Comparing data points between countries is unfair in
some cases, and simply meaningless in others. To look at metrics globally,
examine local comparators, then compare your local performance against local
norms as a ratio. Don’t compare your business’ metrics across borders.
Implemented
and managed, a series of carefully designed metrics will increase the perceived
value of HR, focus the work of HR professionals, and demonstrate that HR
understands the business – and is aligned with its direction. Once in place,
they become a standing message that HR, like other areas of the enterprise,
will stand up to the scrutiny of data.
Globalisation
is forcing businesses to wise up to how they measure people more effectively.
Carolyn Nimmy of Cap Gemini Ernst & Young explains what the company did to
help measure the ‘hard side’ of HR value
During
these tough economic times, the focus on measures is likely to get stronger as
business focuses more and more on what creates value.
Cap
Gemini Ernst & Young represents the living dichotomy of most modern
businesses – it is publicly traded and driven to produce shareholder value
while at the same time being a services business driven by clients to create
ever-more value for lower cost and completely dependent on the most volatile
resource known to mankind, people power.
It
is this balance between drivers that has led CGE&Y to have both a very
strong P&L and HR focus and, as such, to cultivate a strong understanding
of critical HR measures.
In
a professional services firm, HR management is highly integrated into the role
of every line manager and engagement manager – perhaps more so than in many
other businesses.
Often
in the past the HR department was seen by the line manager as business support,
an administration/HR services centre looking after the “soft side” of business.
It is this view that over the last few years has made CGE&Y take a look at
how it could better measure the bottom line impact – or the “hard side” of HR
value. Combined with this, the increase in globalisation generated requirements
for better “people measurements” at a global as well as a local level.
CGE&Y
has been using several tracking methods over recent years to help put a
financial value on human resources. Among the methods utilised are The Employer
of Choices Index, Onboarding Success and Talent Loss, which have been designed
to help managers understand their personal impact on the company. These tools
became even more important during the merger phase between Cap Gemini and Ernst
& Young Consulting.
At
the same time as its internal HR teams have been focused on measurements that
add value, the CGE&Y Centre for Business Innovation has been looking at the
growing importance of non-financial measures and how market capitalisation has
become detached from tangible asset base value. Research CGE&Y undertook
showed that a number of non-financial drivers could account for up to 35 per
cent of its valuation. Among these value drivers are a number of areas that HR
can work to measure, the ranking of importance of these value drivers may vary
by industry – but once measurements have been tracked then it is far easier to
look at the measures and figure out what has to be done.
On
brand, for example – the employer branding can be heavily influenced by HR and
measuring how well the brand is doing from both external sources, such as
graduate surveys, and internal sources such as employee surveys, enable
companies to understand how well they are getting their messages across.
Value
drivers that HR can influence:
• Management
• Employees
• Innovation
• Environment
For
the employee, components of the value driver measurements could include
diversity within the workplace, employee relations, talent attraction
capability, public reports on Best Places to Work and so on.
One
of the challenges on improving HR measurements at a global level is choosing
the right things to measure – some HR measures are heavily influenced by the
regional environment. What is relevant in the US may have no relevance in
France or Singapore.
This
requires identifying the ones that will have the most impact everywhere and
focusing on these. Some measures are needed year on year while others may have
a short-term focus to be able to prove a business case that then improves that
area.
Another
challenge is terminology – the need to be very clear and precise in your
definition of the measure you want.
Remembering
that what gets measured gets managed; let’s make sure what we measure matters.
How
do you measure the value created by human capital, seen by some as the most
valuable asset to the business? Garret F Walker explains
Most
business leaders will agree that their employees, the ‘human capital’ are one
of the most important parts of their competitive advantage. Many state this
publicly in their annual reports. However, few, if any, have an effective
process to measure the value created by this ‘most valuable’ asset.
In
the next 10 years the source of competitive advantage for most business will
continue to focus increasingly on the talent within the organisation. The
ability to effectively manage this talent is becoming more critical every day.
Management
makes decisions continuously about how to invest in human capital, usually with
very little clear information about how those investments will produce a
return.
What
if we could effectively manage the value created by our investments in our
employees? We know now how much we pay to reward, hire and train, develop and
provide benefits our employees. However, what we need to do is know where our
investments are most effective and valuable.
•
Should we expand our incentive pay programme?
• Should we outsource our safety administration?
• What is the most effective use for our training dollars?
• How much should we spend on recruitment?
• Should we insource, outsource or co-source employee services, buy or build
executive benchstrength?
• What is the cost in human capital terms to break into a new market?
• Is the acquisition target a good fit and does it add or dilute our competitive
advantage in terms of talent?
• Do our investments in employees match the strategic objectives of the
business?
• Is the HR organisation a partner with the business to manage our employees as
assets?
To
answer these questions, management needs more information than simple cost
figures. We need to track our financial results while monitoring progress in
developing our human capital and acquiring the talent and capabilities we will
need for business success.
The
Balanced Scorecard provides a system that leverages the traditional financial
and efficiency measures we have available currently for HR with metrics of
performance from three additional perspectives – customers, internal business
processes and learning and growth.
The
Human Resource Challenge was to translate the new business strategies and
targeted business results into human capital needs. Recognising that GTE’s
employees were a critical component to achieving business goals, GTE HR leaders
inventoried the current skills and abilities that would provide value both in
the short-term and into the future. HR
professionals
then identified the critical people imperatives necessary to grow that talent
to increase the value delivered by the workforce. GTE would need new
behaviours, actions and capabilities to drive the business results.
To
focus the HR organisation on the achievement of these people imperatives, GTE
developed a new HR strategy to support the specific people requirements of the
business strategy.
This
HR strategy was defined in five strategic thrusts:
•
Talent: enlarge the talent pool, invest in employees’ development, ensure
diversity
• Leadership: establish a system to assess high-potential employees, provide
coaching and development, establish accountability and rewards for leadership
behaviour
• Customer service & support: create an environment that fosters employee
engagement, increase business intelligence within the workforce, provide
solutions to retention issues
• Organisational integration: create better systems for knowledge management,
union partnerships
• HR capability: develop core HR competencies, identify key talent for growth
and development, invest in technology, employee self-service, better understand
the relationship of HR actions to business outcomes
The
people requirements define the HR strategy that then translates into specific
HR initiatives that should directly support the attainment of HR strategy.
Having this clear alignment allowed us to develop a strategy map, which
illustrates the cause and effect linkage between HR strategy and business
objectives. Using the strategy map as the guide, we are then able to evaluate
the strategic objectives in terms of measures and outcomes. Lagging measures
and leading measures, indicators of future performance.
Historically,
we had a difficult time communicating to the business and maintaining its focus
on the investments and initiatives designed to build employee capability.
Strategic
skill development, leadership development and employee development programmes
were all discussed with business leaders and generally accepted as valuable.
However,
when financial pressure was applied, these types of programmes were the first
to go. Now with measures, which link leadership development with competitive
capability, people can see the relationship between investing in this programme
and achievement of long-term business goals.
An
early benefit of the HR Scorecard work was that it provided a process for the
senior HR team to focus on a clear and common objective and establish a common
strategy for the HR in support of business objectives. Everyone generally
agreed on a high-level strategy, “Be a partner to the business.”
However,
rarely did all of the HR leadership agree on how to implement the strategy
because each person had a different opinion about what being a business partner
really meant and who exactly the customer was. Taking strategy and translating
it into a measurement and management model gave
specific
and operational definitions for being a business partner and targeted business
customers.
Measures
do not manage and simply tracking results was not the only intended use of the
HR Scorecard. The challenge to use the information provided in the scorecard to
take action to influence and improve business performance was the real value
advantage of this tool. For example, one of the most important areas to manage
in terms of cost is employee turnover or “churn.”
Turnover,
particularly within target front-line workforce centres, is critical to
productivity and expense control. High turnover results in lower productivity,
higher training, staffing and occupational health costs. The impact is across
the board and affects business profitability.
Starting
in 1998, with a new disciplined process using the HR Scorecard, our HR professionals
tracked and analysed turnover statistics, determined reasons for turnover,
calculated the negative financial impact, prescribed solutions, tracked
improvement trends and showed dramatic results. In partnership with the
business leadership in targeted call centres, significant costs were avoided by
reducing the regretted turnover.
Links
between business processes and value chains to HR actions and services were
clearly defined as the HR Scorecard became a business tool that was understood
and used across the HR organisation. Not only are human capital initiatives
needed to increase employee value delivered to the business, they are
vulnerable to business process changes and the measures taken in isolation can
be misleading.
For
example, in a regional call centre, our external business measures of customer
satisfaction were going downwards and accelerating. When HR reviewed the
measures from the call centre from the HR Scorecard, there was no single
indicator that showed any direct relationship to the customer satisfaction
issue.
However,
the measures together with input and analysis with line management pointed to
an issue and solution not readily apparent.
The
HR metrics showed a very low cost per hire, a very quick cycle time to fill
jobs and an average employee separation rate. On the surface nothing unusual,
in fact the staffing metrics showed a high efficiency and cost control.
Drilling deeper we saw a high cost of training, a very high separation rate for
short service employees and declining employee satisfaction for long-service
employees.
Further
analysis revealed that six months beforehand, a significant expense reduction
effort was put in place for this call centre. HR responded to the required
reduced expense by changing talent pools and reducing the investments in
selection methods. This action kept costs low while bringing in applicants who
were ready to start quickly but were harder to train and keep. It was a bad
trade-off. It made sense to accept a longer cycle time and more cost to ensure
the right person was put in the right job.
The
HR balanced scorecard has made it possible for HR managers to understand how
they align to business objectives. They are able to explain not only what they
are tracking, but also how they are performing on essential strategies for the
business.
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Business
environment and the objectives and strategies will continue to evolve and HR
managers will continue to be flexible and creative in supporting the changes.
The value of the HR Scorecard as a tool is that it can get us to the new goals
and measures and through the process ensure continued learning and change
management.
This
article first appeared in Global HR magazine. To find out more about
subscribing to Global HR, click here.
