DAVID PARRY, Partner, UK HR transformational leaders consulting practice,Deloitte
Business leaders are finally recognising that they need to understand and manage the impact and contribution of the workforce, the 'human capital', on business results. But some commentators confuse human capital measurement (the workforce) with HR function measurement (operations). As a result, people and HR measures are being mixed-up. Organisations that do measure their human capital are still adopting a piecemeal approach. All too often there is a credibility gap, where human capital measurement is enclosed within the realms of HR, disjointed from business priorities. There is no 'one size fits all' approach but the following practices can help develop a robust human capital method of measuring.
- Before be clear and get buy in
Be clear what human capital measurement is. It's about measuring how effective your people management practices are in maximising employee contribution to business performance and the achievement of business strategy. Get buy in, particularly from your CEO, COO and the management team. A definition of human capital will need to be agreed and this definition should be based on the business priorities. For example, organisations in the retail industry tend to focus on employee engagement and satisfaction as a key measure because of the impact on customer satisfaction. The oil industry, however, is currently focused on talent and employee skills within an ageing workforce, in order to ensure continuity where an increasing proportion of staff is on the brink of retirement. Agreement on the right measures needs input from across the whole organisation. HR will need to work with the leadership team to agree the critical business issues and people matters that need to be measured (see below).
See also The Human Equation: Building Profits by Putting People First by Jeffrey Pfeffer
- The Human Value of the Enterprise: Valuing People as Assets - Monitoring, Measuring, Managing by Andrew Mayo
During implementation schedule
Understand and document your strategic business priorities. You should work with the COO who, as an implementer of strategy, is most closely concerned with metrics and measurement. Define the people strategy to achieve these business priorities. Design the people practices required to achieve the people agenda. Define the metrics that will be used to indicate the effectiveness of these people practices and collect data. Manage investment in people practices based on business performance outcomes, as illustrated by performance against metrics.
See also The HR Scorecard: Linking People, Strategy and Performance by Brian E Becker, Mark A Huselid and David Ulrich
The Workforce Scorecard: Managing Human Capital to Execute Strategy by Mark A Huselid, Brian E Becker and Richard W Beatty
AFTER TIPS FOR MANAGERS
Get feedback from people who use and develop the metrics. Here are some checkpoints to evaluate what is working well and what you should improve:
- Are the metrics still aligned to your priorities? How are priorities likely to change and what do you need to build in?
- Does the data gathered demonstrate the business impact of your people practices? Which metrics have the biggest impact?
- Are there visible long-term/immediate actions resulting from the metrics?
- Should you continue reporting at the proposed frequency? Are the trends meaningful to able you to make decisions?
- Do you have confidence in the data input?
- Is there enough analysis around the data?
- Are the target ranges or thresholds for each metric realistic and challenging?
Remember, metrics is not a one-time fix but a cultural commitment to performance improvement.
David Parry is speaking on effective HR metrics at the HR Leaders' Forum on 12-14 November. www.hrleadersforum.co.uk
FOCUS ON CRITICAL BUSINESS AREAS
Select five to seven areas and perhaps 15-20 metrics that are critical to the organisation. Here are some guidelines.
What is the return on our people policies and procedures? It is important to identify the critical workforce levers that have an impact on the bottom line. Correlate key operational and strategic HR measures with business performance indicators. Examples include the impact of employee engagement on customer satisfaction or the impact of employee capability on revenue.
How well are we delivering our brand promise to employees? Examples include measurement of management development against leadership performance or the impact of reward and recognition on retention. Use feedback surveys to measure the value focused metrics.
How effectively is HR serving the business? Examples include learning days per employee or reduction of absenteeism. Most companies find it essential to report on these basic HR measures. You should have clearly defined targets and develop action-focused reports.
