HR Gets an 'Incomplete' in Metrics
Despite recent studies that link specific HR practices to improved corporate financial performance, relatively few organizations seem to be collecting the kind of information needed to truly gauge HR's impact on the bottom line. Moreover, even once most companies start collecting metrics-based data, they'll need to fit it into decision-making models, which are only now under development by consultants, academics and other HR experts.
The 2002 Society for Human Resource Management/ Employment Management Association (SHRM/EMA) "Staffing Metrics" study found, for example, that just 17% of its 627 respondents were tracking voluntary separation costs and only 20% were tracking involuntary separation costs. Jac Fitz-enz, chair of the Saratoga Institute (now part of Spherion's Human Capital Consulting Group) considers separation costs one of the top ten areas of measurement for HR. In fact, the 2001 Watson Wyatt Worldwide Human Capital Index (HCI) study determined that recruiting and retention excellence is associated with a 7.9% rise in market value. Fitz-enz says that separation costs alone can average six months' equivalent of revenue per employee. Yet even among the paucity of HR professionals who are tracking voluntary and involuntary separation costs, most provide this figure only annually - certainly not often enough to enable them to quickly spot and respond to trouble.
Instead, most HR departments are focused on basic measures such as number of new hires, number of vacancies, source of hire, time to fill, and number of replacements, according to the SHRM/EMA study. Additionally, these common measures are the ones most often tracked on a regular monthly basis. Even total cost per newly hired employee is calculated by just over half of the respondents. Other important measures are even less visible. For example, quality of new hires and cost of turnover are tracked by only a little more than a third of respondents.
Why the disconnect between what HR departments choose to measure and which measures can prove a link between HR practices and the bottom line? One answer might lie directly within the staffing of the HR department itself. Many HR professionals report that their organizations simply don't have sufficient staff available to conduct or complete a metric analysis.
A lack of the still-developing skill set required to capture this data and link it directly to shareholder value may also be prohibiting broader use. While the majority of HR professionals responding to the SHRM/EMA study (70%) believe that HR is seen as a strategic partner within their organization, only a third could say that the knowledge and expertise of the HR staff was extremely helpful in providing the ability to collect metrics.
At a February 2002 Balanced Scorecard Collaborative, Inc. conference in Naples, FL, Fitz-enz told business leaders, "We're not trained to use numbers in HR. But that's changing." Yet, even such training will not be enough. Many experts believe there needs to be a common framework that permits the sharing of metric-based knowledge across organizations and a decision-science model that helps organizations fully leverage such knowledge. As Tamara Heim, president of Borders Books and Music Stores, is quoted as saying in HR Magazine, "You can provide all the data and information on a problem that you want, but what good is all that information if you don't have an idea how to put it to use?"
The Human Resource Action Working Group (HRAWG) is one entity that's trying to develop a common framework. Its leader, Dr. David P. Norton, writes, "If we looked at an organization's financial balance sheet, we would find common categories and measures.... Today, such a framework does not exist to describe human capital." HRAWG is intent on creating a "Human Capital Readiness Report" that describes and measures the way in which human capital interacts with organizational strategy.
Prof. John Boudreau of the Center for Advanced Human Resource Studies at Cornell University is also interested in such interactions, but his focus is different. In an upcoming book, he and coauthor Peter Ramstad write, "Consulting firms increasingly offer products designed to measure or demonstrate the relationship between human resource programs and financial value. Yet, much of this focus is on developing new measures with relatively less attention to frameworks for decision support." Boudreau and his colleagues are developing a model linking human capital and organizational performance and showing how such a model affects decision-making.
So, the good news is that there are any number of bright people working to perfect HR metrics and models. The bad news is that until further progress is made, the HR profession continues to get a grade of "incomplete" in this area.
For more information on the SHRM/EMA Staffing Metrics Series, including a link to a PowerPoint presentation, see
http://www.shrm.org/staffingmetrics/
For further information on the Watson Wyatt Worldwide 2001 study "Human Capital Index: Human Capital As a Lead Indicator of Shareholder Value," see
http://www.watsonwyatt.com/research/resrender.asp?id=W-488&page=1.
For more on Prof. John W. Boudreau and his writings, see
http://www.ilr.cornell.edu/cahrs/boudreau_john.html#Metrics
For more information on the HR Action Working Group, see
http://bscol.com/invoke.cfm?id=F0909F86-A9C3-11D4-A8C000508BDC96C1
For other information on the Balanced Scorecard Collaborative, Inc. conference, see "HR: Learn to Measure Success," by Steve Bates, in the April 2002 issue of HR News, pp. 7-11.
For a discussion of studies relating strong HR practices with improved corporate performance, see Tom Terez's article "Build a Case for HR's Bottom Line Impact" in the March 2002 issue of Workforce, pp. 22-24.
For an article discussing what executives think HR professionals need to do to become more strategic, see "Straight Talk," by Bill Leonard, in the January 2002 issue of HR Magazine, pp. 46-51.
Jac Fitz-enz's top ten areas of HR measures are presented in "The Top 10 Measures of Human Capital Management" in the May 2001 issue of HRfocus, p. 8.
The 2002 Society for Human Resource Management/ Employment Management Association (SHRM/EMA) "Staffing Metrics" study found, for example, that just 17% of its 627 respondents were tracking voluntary separation costs and only 20% were tracking involuntary separation costs. Jac Fitz-enz, chair of the Saratoga Institute (now part of Spherion's Human Capital Consulting Group) considers separation costs one of the top ten areas of measurement for HR. In fact, the 2001 Watson Wyatt Worldwide Human Capital Index (HCI) study determined that recruiting and retention excellence is associated with a 7.9% rise in market value. Fitz-enz says that separation costs alone can average six months' equivalent of revenue per employee. Yet even among the paucity of HR professionals who are tracking voluntary and involuntary separation costs, most provide this figure only annually - certainly not often enough to enable them to quickly spot and respond to trouble.
Instead, most HR departments are focused on basic measures such as number of new hires, number of vacancies, source of hire, time to fill, and number of replacements, according to the SHRM/EMA study. Additionally, these common measures are the ones most often tracked on a regular monthly basis. Even total cost per newly hired employee is calculated by just over half of the respondents. Other important measures are even less visible. For example, quality of new hires and cost of turnover are tracked by only a little more than a third of respondents.
Why the disconnect between what HR departments choose to measure and which measures can prove a link between HR practices and the bottom line? One answer might lie directly within the staffing of the HR department itself. Many HR professionals report that their organizations simply don't have sufficient staff available to conduct or complete a metric analysis.
A lack of the still-developing skill set required to capture this data and link it directly to shareholder value may also be prohibiting broader use. While the majority of HR professionals responding to the SHRM/EMA study (70%) believe that HR is seen as a strategic partner within their organization, only a third could say that the knowledge and expertise of the HR staff was extremely helpful in providing the ability to collect metrics.
At a February 2002 Balanced Scorecard Collaborative, Inc. conference in Naples, FL, Fitz-enz told business leaders, "We're not trained to use numbers in HR. But that's changing." Yet, even such training will not be enough. Many experts believe there needs to be a common framework that permits the sharing of metric-based knowledge across organizations and a decision-science model that helps organizations fully leverage such knowledge. As Tamara Heim, president of Borders Books and Music Stores, is quoted as saying in HR Magazine, "You can provide all the data and information on a problem that you want, but what good is all that information if you don't have an idea how to put it to use?"
The Human Resource Action Working Group (HRAWG) is one entity that's trying to develop a common framework. Its leader, Dr. David P. Norton, writes, "If we looked at an organization's financial balance sheet, we would find common categories and measures.... Today, such a framework does not exist to describe human capital." HRAWG is intent on creating a "Human Capital Readiness Report" that describes and measures the way in which human capital interacts with organizational strategy.
Prof. John Boudreau of the Center for Advanced Human Resource Studies at Cornell University is also interested in such interactions, but his focus is different. In an upcoming book, he and coauthor Peter Ramstad write, "Consulting firms increasingly offer products designed to measure or demonstrate the relationship between human resource programs and financial value. Yet, much of this focus is on developing new measures with relatively less attention to frameworks for decision support." Boudreau and his colleagues are developing a model linking human capital and organizational performance and showing how such a model affects decision-making.
So, the good news is that there are any number of bright people working to perfect HR metrics and models. The bad news is that until further progress is made, the HR profession continues to get a grade of "incomplete" in this area.
For more information on the SHRM/EMA Staffing Metrics Series, including a link to a PowerPoint presentation, see
http://www.shrm.org/staffingmetrics/
For further information on the Watson Wyatt Worldwide 2001 study "Human Capital Index: Human Capital As a Lead Indicator of Shareholder Value," see
http://www.watsonwyatt.com/research/resrender.asp?id=W-488&page=1.
For more on Prof. John W. Boudreau and his writings, see
http://www.ilr.cornell.edu/cahrs/boudreau_john.html#Metrics
For more information on the HR Action Working Group, see
http://bscol.com/invoke.cfm?id=F0909F86-A9C3-11D4-A8C000508BDC96C1
For other information on the Balanced Scorecard Collaborative, Inc. conference, see "HR: Learn to Measure Success," by Steve Bates, in the April 2002 issue of HR News, pp. 7-11.
For a discussion of studies relating strong HR practices with improved corporate performance, see Tom Terez's article "Build a Case for HR's Bottom Line Impact" in the March 2002 issue of Workforce, pp. 22-24.
For an article discussing what executives think HR professionals need to do to become more strategic, see "Straight Talk," by Bill Leonard, in the January 2002 issue of HR Magazine, pp. 46-51.
Jac Fitz-enz's top ten areas of HR measures are presented in "The Top 10 Measures of Human Capital Management" in the May 2001 issue of HRfocus, p. 8.