The Future of HR Metrics
Over the last two decades, HR has advanced significantly in the area of strategic planning and metrics. The common wisdom today is that HR needs to be aligned to the business strategy. As a result, HR typically has a planning process that starts with the business plan and then develops cascading goals with cascading metrics to show how efficiently and effectively HR meets those goals.
Despite these advances, business leaders are becoming increasingly frustrated with HR, even when HR operations are executed exceptionally well. In most organizations, marketing, operations, and budgeting metrics are connected deeply and logically to the business’s strategy. But that hasn’t usually been the case with HR metrics.
A typical business strategy may include items like the drive to win, be flexible, embrace risk, be creative, think globally and be fast. Typical HR metrics, however, reflect only general goals like headcount, turnover rates, number of succession candidates, time-to-fill, training completed, client satisfaction surveys or other generic HR programs. So, there is a clear disconnect between traditional metrics and business strategy. Traditional metrics do not help managers understand which HR issues are the strategic ones and which are mostly tactical. Even the companies that are investing heavily in the latest HR measurement techniques – HR scorecards, HR financial reports, ROI on HR programs, and studies of how HR programs enhance attitudes, skills, and abilities – seldom use their metrics to influence key business decisions, such as acquisitions and entry into new markets.
Can HR measures truly drive business decisions and investments?
We think the answer is a definite YES they can and YES they should. The two most important goals for HR measurement should be to enhance decisions about human capital and connect human resources to strategy. Knowing how many hours of training have been delivered within the current budget provides pretty much the same amount of information as knowing how many advertisements the marketing department is running. In either case, nothing is said about the impact that those investments have had on achieving the organization’s strategy.
Just as marketing needs to know the impact that the campaign has had on sales and brand recognition, HR needs to know the impact that it is having on the business, as key HR thinkers such as Prof. John W. Boudreau at the University of Southern California have argued. To do this, HR must look beyond measuring the efficiency and effectiveness of operational programs and look outside the function to measure how well the HR profession is helping the organization execute the strategy.
Why is execution the key to the future of HR metrics?
The fast execution of strategy is one of the biggest challenges facing executives today. Having a great strategy is not enough. To be successful, companies must be able to turn great strategy into great performance. In short, they must be able to execute. According to various authorities and studies, it is not the lack of a strategy that causes senior executives to lose sleep, but rather their organization’s inability to execute a strategy. And, they should worry; in the past three years, nearly 40% of the top CEOs have been removed from their posts, most because they failed to execute the strategy.
Execution is a wide-ranging discipline that connects business strategy to internal and external realities by aligning three key business processes: strategy, operations and people. The alignment of the first two – strategy and operations – is straightforward and can be done fairly quickly. But the alignment of the people side of the equation is usually slow and follows a different logic. S uccess and speed of execution depend on people alignment, yet this is the hardest element to align! And this is where HR can have the biggest impact.
How does HR know if the company’s human capital is aligned to the business strategy?
Research conducted by HRI points to five interconnected elements for assessing the alignment of people to the business strategy:
1. Strategic Cohesiveness: Do the people understand and buy into the business’s philosophical approach to the marketplace, and do they understand what it means for their job?
2. Customer Focus: Do the people understand and support the customer relationship, as well as understand the customer’s needs?
3. Leadership: Are the leaders communicating a passion for the future? Style, motivation and commitment must be present.
4. Performance: Do employees see how their daily activities match and support the marketplace approach?
5. Culture: Do the employees’ attitudes, values and beliefs match the organization’s approach to the marketplace?
By addressing these elements, HR professionals and their companies will enjoy various advantages. First, they’ll have a complete map of the organization, one that will provide them with multiple viewpoints, ranging from an overarching strategic viewpoint to knowledge of what’s happening “on the ground.” They’ll see things from the divisional and functional perspective as well as the individual and team perspective. Second, they will be able to see where the blockages to strategy execution are and how they can minimize or remove them. Third, they will know where the “pivot points” are, those key areas in the organization that management can count on when it changes strategic course. And fourth, they will know what the organization’s core strengths are, so their companies can grow by building on strengths they already have.
In the HR profession, we need to remember: It’s not ultimately about numbers; it’s about the pathway to discovery!
For more on the ideas of Jay Jamrog and Miles Overholt, see“Measuring Organizational Effectiveness” and “Building a Strategic HR Function” in the White Papers section.
For more information on John W. Boudreau, click here.
Despite these advances, business leaders are becoming increasingly frustrated with HR, even when HR operations are executed exceptionally well. In most organizations, marketing, operations, and budgeting metrics are connected deeply and logically to the business’s strategy. But that hasn’t usually been the case with HR metrics.
A typical business strategy may include items like the drive to win, be flexible, embrace risk, be creative, think globally and be fast. Typical HR metrics, however, reflect only general goals like headcount, turnover rates, number of succession candidates, time-to-fill, training completed, client satisfaction surveys or other generic HR programs. So, there is a clear disconnect between traditional metrics and business strategy. Traditional metrics do not help managers understand which HR issues are the strategic ones and which are mostly tactical. Even the companies that are investing heavily in the latest HR measurement techniques – HR scorecards, HR financial reports, ROI on HR programs, and studies of how HR programs enhance attitudes, skills, and abilities – seldom use their metrics to influence key business decisions, such as acquisitions and entry into new markets.
Can HR measures truly drive business decisions and investments?
We think the answer is a definite YES they can and YES they should. The two most important goals for HR measurement should be to enhance decisions about human capital and connect human resources to strategy. Knowing how many hours of training have been delivered within the current budget provides pretty much the same amount of information as knowing how many advertisements the marketing department is running. In either case, nothing is said about the impact that those investments have had on achieving the organization’s strategy.
Just as marketing needs to know the impact that the campaign has had on sales and brand recognition, HR needs to know the impact that it is having on the business, as key HR thinkers such as Prof. John W. Boudreau at the University of Southern California have argued. To do this, HR must look beyond measuring the efficiency and effectiveness of operational programs and look outside the function to measure how well the HR profession is helping the organization execute the strategy.
Why is execution the key to the future of HR metrics?
The fast execution of strategy is one of the biggest challenges facing executives today. Having a great strategy is not enough. To be successful, companies must be able to turn great strategy into great performance. In short, they must be able to execute. According to various authorities and studies, it is not the lack of a strategy that causes senior executives to lose sleep, but rather their organization’s inability to execute a strategy. And, they should worry; in the past three years, nearly 40% of the top CEOs have been removed from their posts, most because they failed to execute the strategy.
Execution is a wide-ranging discipline that connects business strategy to internal and external realities by aligning three key business processes: strategy, operations and people. The alignment of the first two – strategy and operations – is straightforward and can be done fairly quickly. But the alignment of the people side of the equation is usually slow and follows a different logic. S uccess and speed of execution depend on people alignment, yet this is the hardest element to align! And this is where HR can have the biggest impact.
How does HR know if the company’s human capital is aligned to the business strategy?
Research conducted by HRI points to five interconnected elements for assessing the alignment of people to the business strategy:
1. Strategic Cohesiveness: Do the people understand and buy into the business’s philosophical approach to the marketplace, and do they understand what it means for their job?
2. Customer Focus: Do the people understand and support the customer relationship, as well as understand the customer’s needs?
3. Leadership: Are the leaders communicating a passion for the future? Style, motivation and commitment must be present.
4. Performance: Do employees see how their daily activities match and support the marketplace approach?
5. Culture: Do the employees’ attitudes, values and beliefs match the organization’s approach to the marketplace?
By addressing these elements, HR professionals and their companies will enjoy various advantages. First, they’ll have a complete map of the organization, one that will provide them with multiple viewpoints, ranging from an overarching strategic viewpoint to knowledge of what’s happening “on the ground.” They’ll see things from the divisional and functional perspective as well as the individual and team perspective. Second, they will be able to see where the blockages to strategy execution are and how they can minimize or remove them. Third, they will know where the “pivot points” are, those key areas in the organization that management can count on when it changes strategic course. And fourth, they will know what the organization’s core strengths are, so their companies can grow by building on strengths they already have.
In the HR profession, we need to remember: It’s not ultimately about numbers; it’s about the pathway to discovery!
For more on the ideas of Jay Jamrog and Miles Overholt, see“Measuring Organizational Effectiveness” and “Building a Strategic HR Function” in the White Papers section.
For more information on John W. Boudreau, click here.
Jay is a futurist and has devoted the past 25 years to identifying and analyzing the major issues and trends affecting the management of people in organizations.