February 23 , 2019

Developing A Strategic Staffing Performance Index

Why Using Metrics Is Essential

In a highly competitive world dominated by performance driven organizations and CFO's that want to cut your budget, it is no longer optional to demonstrate your value. The environment dictates that everyone be accountable! If you are in a situation where “charm” has run out as an option, then it's probably time to consider switching to metrics to prove your impact.

When people ask me how I differentiate world class from average HR, the one factor that stands out dramatically is the extensive use (or lack of use) of metrics to measure HR success. The very best like Intel, Cisco and Microsoft are metrics fanatics, while the worst use feelings and instincts to judge their success. When you look specifically at the employment functions top firms the differences become even more apparent. Most recruiting departments are in the Stone Age when it comes to metrics. Why? Well there are a million excuses but they are all just that… excuses!

Changes In The Business World Are Driving The Increased Use Of Metrics

Three trends in business are driving the increased need for metrics. First, technology that helps organizations transition into a paperless environment makes it easier to capture and analyze data at a much more granular level across the enterprise.   As the scope of these technologies grows wider and wider, the mere availability of such data will drive attention to micro level details and demand some framework to help make management of such details feasible. 

Next, as global infrastructures standardize, the workforce will become more geographically dispersed, and team structures will most likely incorporate a number of individuals who work remotely. As a result, managers will no longer be able to assess an individual's performance by physically looking at employee output. Instead, metrics will become the primary tool to measure and compare productivity between dispersed employees and business units.

The final driver of metrics is the past precedence set forth by functions such as supply chain management. The supply chain process has transformed a "back water" operation (warehousing, procurement and shipping) into a widely talked about profit center. The reinvention of supply chain has succeeded in large part because they shifted to 100% metric based decision-making.

It is unlikely that any of these three trends will slow down in the immediate future, so now is the time to jump on the metrics bandwagon before someone in authority uses your lack of metrics as an excuse to cut your budget… or to cut you!

Additional Business Reasons Why You Should Use Metrics In Recruiting

Metrics help you manage better. They tell you what to do more of and less of. Metrics allow you to focus your limited resources on tools and strategies that demonstrate a significant business impact. If you need a further push, here is a list of why metrics are beneficial in recruiting.

1.   Metrics Eliminate Confusion – Employees and managers receive so many mixed communications and messages that deciphering what is important can be difficult. Metrics both define what is important and they also tell the person precisely what level of performance is expected

“What you measure and reward takes away all doubt about what is important”

2.   They Help Push Continuous Improvement – Comparing results metrics between different time periods identifies at what rate performance is improving or deteriorating. Metrics help focus recognition and attention on those programs that are continuously improving. It also gives stagnant programs a benchmark to compare themselves to.

3.   Metrics Allow You To Come Across As An Expert – Experts are respected because they emphasize evidence and data rather than conjecture. To be credible, it is essential that you differentiate facts from opinions in your arguments. Specifically in technical departments “numbers and data” are the “language” that everyone uses.  If you use another language that substitutes feelings for numbers… no one will listen to you because they will interpret the over use of opinions as meaning that you just don't have any facts. The best managers in business shift so that eventually they are making mostly “fact based” decisions.

“Remember…Without Data, It's Just An Opinion”

4.   Distributing Metrics Can Change Individual Behavior – Only rewards change behavior faster than distributing ranked metrics to all. By ranking and distributing your metrics you provide visible side-by-side comparisons that can be embarrassing to some and rewarding to others, both of which spur employees and managers into action.

5.   Metrics Are Superior To Culture In Changing The Behavior Of Your Managers – Instead of solely relying on your corporate “culture” to drive actions you should instead rely on metrics and rewards to send the message about how you expect people to behave in a certain situations. You will find that by simply changing the metrics and rewards you can quickly change the behavior of most everyone to effectively enforce the elements of your culture that matter most. In contrast, most find that changing a corporate culture is extremely difficult and slow, which inevitably slows the needed change in behavior

6.   Metrics Can Help To Improve Your Relationship With The CFO And CIO – Using metrics (especially ones pre-approved by the CFO) sends a clear message that you are “business-like”. Tracking and quantifying your results can almost instantly get the CFO and CIO off your back because it shows that you now think and talk like them (i.e. you both now make fact based decisions). By measuring results you are demonstrating to top management that you are results oriented. Reports that are full of numbers and metrics will make the CFO happy, not just because they are easier to read than most “wordy” HR reports, but also because they make your results more easily comparable to what others do.

7.   Metrics Can Build Coordination/ Cooperation -Metrics that transcend departmental lines can encourage cooperation. When work is broken up so that two or more functional units handle parts of it independently, cooperation between them can be increased by using a metric (and a reward) that measures the final output after both parties complete work on it. The cooperation increases because both units eventually realize that neither unit can succeed unless the other unit also does its part. This “Superordinate” goal or metric demonstrates to both units their degree of interdependency.

8.   Metrics Can Help To Build Self-Confidence – Assigning a “passing score” to a task allows you to compare your work to a standard. Individuals can then easily compare their work to that passing score to determine how you are doing. For the best performers, that comparison helps to build their self-confidence. Metrics can also give you legitimate bragging rights if you come out on top.

9.   Modern ERP And ATS Systems Make It Easier – Because the best new HR software programs include analytical components it is now easier than ever to find the data you need and to calculate the metrics. Some software can even help you forecast trends and avoid common errors.

10. Metrics Help You Ensure That You Are Meeting Your Goals And Customer Needs – It's easy to assume that your internal customers are happy with you but it's better to find out for sure. Customer satisfaction metrics allow managers to know who is happy and who isn't. In addition, if you provide senior management at year-end with a report that lists your yearly goals and the metrics to prove that they have been met each, you send a quick but clear message that you did what you promised.

Common Reasons Given For Avoiding Metrics?

1.   I don't have a degree in math or statistics – In reality, most metric calculations can be done on an excel spreadsheet or with existing software, and do not rely on advanced mathematical or statistical techniques.

2.   Too many metrics are needed – Your right. Don't overdo a good thing. Keep the number of metrics below 10 per organizational level.

3.   Collecting data is expensive  – Over collection of data is common, because few organizations know what they have with regards to data and where to find it. Whenever possible use existing information. You do not have to measure every event or job. Instead prioritize jobs and business units and use sampling techniques to reduce the time and costs. Involve the CIO and HRIS in finding what information is already available.

4.   I tried them but the manager's didn't take them seriously – Good metrics measure the things that senior managers care about. To build credibility you must pre-test your proposed metrics with a “hard-assed” person like the CFO to ensure they meet their muster. Don't start out using soft metrics and your credibility will automatically increase.

5.   No one else in HR uses them – That might be true but look at those people as the next targets for budget cuts. In tough economic times, you prove your business impact or you are gone.

6.   Everyone likes and respects me already – Being friendly and available is not the same as being productive and generating business results. Well-liked people are let go everyday during a downturn so make sure you can prove your results are superior.

7.   I'm just overhead… there is no output to measure – Great recruiting directly impacts productivity, there is no doubt about that. If you can't directly show your impact on the business then you are clearly not doing effective recruiting. Who you hire, and how long they stay impacts every business unit.

Elements Of A World-Class Metrics Program

Not everyone agrees on what a metrics program should look like but in my experience the very best include the following 5 elements:

·        The goal to be met — What specifically are you trying to accomplish with the process, tool or program? It is often the output of a process  (Example – effective sourcing)

·        The quantity or number — A number that reports the Quantity (volume or amount) of the process output (Example 80% of our hires last year came from referrals)

·        A benchmark number — A benchmark number for comparison purposes. You can compare to last year, the initial goal, an industry average etc. (For example the industry average for referrals is 30%)

·        A measure of quality — A measure of the quality of the output  (Did it work, error rate, usability)

·        Additional sub measures — And when relevant you should also include one or more of the following sub-metrics that cover…

A.  Time (when done, response time, time to complete, met deadline)

B.  Money (cost, revenue)

C.  Satisfaction – (liked the process or result)

 

What Criteria Should I Use To Select Which Metrics To Use?

Not all companies are the same each have their own culture and focus.  Some emphasize performance in every area of the business while other firms narrow in on only one area like costs or quality. Because using metrics gets almost everyone to focus on what is important, when selecting departmental metrics (like in HR or recruiting) select those that reflect the values and goals of the corporation.  I recommend that when you select departmental metrics for recruiting that you use the following criteria:

·        Reflect the culture — Select recruiting metrics that reflect the culture and values of the firm.  For example if you work for in engineering firm with quality and precision matter make sure you also select a set of recruiting metrics that focus on quality and precision.

·        Mirror the business goals — Before you pick which metrics to use in recruiting make sure that they align or directly track to the corporate goals and objectives.  Remember the sum of all performance metrics (from the departments) should equal the overall company performance metrics.

·        Mirror your product's critical success factors — If your organization produces a product or service it's important to identify the factors that must be present in order to ensure the successful development and sales of your product.  We call these critical success factors (CSF's). In overhead functions like HR it's important to ensure that even though we are an indirect function that we contribute directly to the product success.  As a result, the metrics we select should relate directly to the products critical success factors.  For example if product development speed is essential for success you should select recruiting metrics which also focus on "speed" and time.

·        Focus on results not just process — Many HR departments utilize metrics which only measure process efficiency.  Although that is clearly important it is far better to report on the outputs of your processes.  For example, a recruiting process could measure the cost per hire (which would be a process efficiency factor) but a better overall metric would be measuring the value of the increased output (productivity) that results from having "more productive people" in your jobs for the next two years.  The cost of the transaction is less important when you have the superior outputs of a superstar employee like Tiger Woods.

What Outputs Or Results Should I Focus On?

There is no magic here. Your department and your firm have certain measurable objectives that must be met.  It is your job as a manager to determine which outputs will lead to the successful completion of each of the major business goals or objectives. If metrics measure performance and output… which output or result area should I select to measure?  While there is no simple answer, most process, product or program outputs can be categorized into several distinct areas.  They include:

Output/ Results Measures

ROI, ratios and value comparisons

1.   Productivity

2.   Profitability

3.   Efficiency

Volume/ number/ dollars

4.   Market value

5.   Amount

6.   Volume

7.   Goal attainment %

8.   Yield

Quality

9.   Consistency

10. Accuracy

11. Reliability

12. Feature-Richness

13. Error rate

Usage/ usability

14. Dependability

15. Capability

16. Utilization %

17. Usability

18. Compatibility

19. Availability

20. Clarity/ understandability

21. Accessibility

Service/ satisfaction

22. Satisfaction rate

23. Number of complaints

24. Return rate

Loyalty

25. Repeat usage/ re-visit rate

26. Brand inclination to buy or use

Visibility

27. Awareness

28. Positive image

29. PR/ press exposure

Costs

30. Cost per unit

31. % of cost over runs

Time/ speed

32. Timeliness

33. % on time

34. Speed of improvement

35. Cycle time

36. Reduced management time

Innovation

37. New idea generation

38. Innovativeness

39. Patents/ copyrights

Which Type Of Metrics Should I Use In Recruiting?

There are basically two types of metrics:

·        a single metric — which measures the output of just one particular process or program

·        an index metric — which in contrast combines several individual process measures into a single uniform "index"

Examples Of A "Single Metrics" For Strategic Recruiting

1.   On the Job Performance Quality of New Hires

2.   Source effectiveness (quality and retention rate per dollar of cost)

3.      New hire failure rates

4.      New Hire Retention Rate

5.      Manager satisfaction

6.   Applicant satisfaction

7.   Speed of hire (% of target dates met)

8.   Diversity of hires

Examples Of Index Metrics

Although not everyone uses index metrics in recruiting there are variety of examples that we encounter every day.  Some of them include:

·        stock market indexes like the Standard & Poor's and Dow Jones

·        economic indexes like the consumer price index

·        environmental condition indexes like the air pollution index

Why You Should Choose An Index For Strategic Recruiting Performance

Although single metrics have great value, all metrics become a burden when their number or complexity increases to the point where they are difficult to use and understand.  If you provide a manager with too many single metrics they may become intertwined in individual program details and never see the big picture.  An index metric allows you have a quick glance to see the performance of particular function or program.  A single number also allows easy comparisons between this year and last as well as between different business units.  Although initially combining the factors into a single index takes a little work, the resulting index is an easy to use and easy to quote indication of performance.

A Comprehensive Single Index For Strategic Recruiting

If you need to compare recruiting performance between this month and last or between divisions a single index is the best approach. An employment index is the averaged score of several a weighted recruiting measures. It is a simple indication of recruiting “health” and it's easy to track on a single chart. In these indexes, any score below 100 is considered below average and below 90 indicates a more serious problem. Indexes can be great smoke detectors or predictors.  If you track them over time you can demonstrate to managers that a dropping score is a forewarning or alert indicating that management action is needed immediately if you are to avoid a further decline.  Two examples of recruitment indexes are provided below.

Example #1– A 5 Item Performance Index For Recruiting

Where the normal or expected score = 100

Needs immediate improvement = a score of 90 or below

Excellent performance = a score of 110 or above

  

Weight

Performance Metric

Two-Year Baseline Score

25%

Performance of New Hires

1.0 Average Performance Appraisal Score

25%

% Hires from EE Referral

40%

20%

Average Time to Fill

60 Days (From date of requisition)

15%

Manager Satisfaction

90% Satisfaction

15%

Diversity Hiring Ratio

10% Diversity

 

How is a factor is calculated?

Performance of hires -The performance of each new hire is measured at the end of their first year.  The standard performance appraisal score is used.  You start with performance appraisal scores of all hires over the last two years.  You add all of the performance ratings together and divide by the number of new hires in order to get the average new hire performance score over the last two years.  That number 1.0, for example becomes a baseline against which you measure all changes. 1.0 score on a new hire performance appraisal becomes equal to the normal or expected score (most generally use 100 is a standard "norm" number), 1.0 = 100.

So, if you hired one hundred new people last year and their average performance appraisal score was 1.0, then your performance of hire base score would be 100, indicating it is average. Anytime actual performance on the performance appraisal scores varied from the 1.0 average by a certain percentage then the element score of a 100 would then be changed by the same percentage variation.  In order to weight the factor you would then multiply that index number by the factor weight (in this case 25 percent) and you would get the final factor score of 25. Since 25 is the average or normal score on that factor what the number 25 indicates is that the performance of your hires is just average, neither bad nor good. A score of say 20 would indicate a poor performance rating of your new hires and a score of 30 would indicate that you are hiring top performers.

 

Calculating a factor where a "negative" score is good

Time to fill – for some index elements when the score of a result goes down it is a good thing.  For example when time to fill decreases it generally means that a recruiting process is working better because the number of days it takes to hire someone has decreased.  On the surface it appears to be a problem because when the overall index increases good things are happening, while with this individual factor the opposite is true.  “Reversing” the direction of the score easily solves the problem.  For example if the time to fill decreased 10 percent (54 days compared to the last two years norm of 60 days) instead of decreasing the standard score of 100 to 90 we would instead "reverse" the percentage change (improvement) because and improvement on the index must be reflected by an increase in the score.  As a result, a 10 percent decrease in time to fill would increase the base number of 100 by 10 percent to 110.

Example #2 — A 10 item performance index for strategic recruiting

Where the normal or expected score = 100

Needs immediate improvement = a score of 90 or below

Excellent performance = a score of 110 or above

Weights

Performance Factor

Two-year Baseline Score

25%

Revenue Per Employee

$160,000 (Total revenues divided by the # of employees)

20%

Performance Of Hires

1.0 (Average new hire performance appraisal score)

15%

New Hire Failure Rate

10% (% of new hires in key jobs that were terminated)

15%

Turnover Of New Hires

5% (the % that quit within their first year)

10%

Source Usage Quality

40% (What % of the hires came from the top source)

5%

Start Dates Met

90% (the % of key jobs filled by the designated start date)

5%

Time To Productivity

100 days (Time for new hires to meet the min. output std)

5%

Manager Satisfaction

90% (very satisfied on year-end survey)

3%

Give Away / Take Away

2 to1 (ratio of employees we "poach" vs. they take)

2%

Diversity Hiring Ratio

10%  (% of all hires that are diverse in exempt jobs)

100%

Total

 

How to determine the appropriate "weight" of a factor

The higher the weight assigned to a particular factor the more impact positive or negative performance will have on the overall index.  For example if you assign a particular factor a weight of 50 percent when it goes down by even 10 percent the overall index will drop significantly (a minimum of 5 percent). In contrast, if a factor only received a 5 percent weight then even a dramatic change in it would only have a minimal (less than 5 percent) impact on the overall index.  Assigning weights to factors isn’t magical.  You just a assign high weight to factors that your boss or your company really care about and low weights to less important items.  Over time you adjust the weights so that eventually when the index reads 100 your are comfortable and when it reads 110 you have no doubt that you are clearly exceeding expectations.

Conclusion

In a fast changing world it is essential that all business units improve their efficiency and effectiveness.  Recruiting of course, is not exempt.  The best way to continually improve is to use measures or metrics because you can’t improve what you don't measure.  When you select your metrics it's important to realize that there are two basic categories, strategic and process metrics.  I recommend you focus on the strategic metrics, which are by definition the ones that have the most direct alignment with the firm's business goals. Once you select your strategic recruiting metrics I recommend that you simultaneously develop a "strategic recruiting index". The index is superior to most metrics because it uses a single number.  A single number makes comparisons between different business units much easier.  A single index number tells managers right away whether I doing really poorly, average or clearly performing above expectations.  Just as Dow Jones and Standard & Poor's have found that index's have great value it's time for recruiting managers to realize the same is true for them.

About Dr John Sullivan

Dr John Sullivan is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high business impact; strategic Talent Management solutions to large corporations.

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