Metrics — The Future of HR

In addition, the increased access to the Internet coupled with better hardware and software means that metrics can be calculated almost instantly and reported to almost anyone at minimal costs.  Fields that used to rely on intuition such as marketing, purchasing (now known as supply chain) and manufacturing have made this shift toward the use of metrics in everything they do.  As a result of all these changes, CEO’s, CFO's and even some shareholders are now looking to HR to jump on the metrics bandwagon.  Unfortunately, many in HR still resist and fear metrics despite the many benefits they offer.

Where And How Did Metrics Evolve?

If this were the Olympics, it would be obvious to all that you couldn't become a champion without measuring results.  In fact, the definition of a champion is "the one with the best results.” In the general business world the use of numbers and metrics is part of life.  CEO's, CFO's and shareholders all measure results using numbers and dollars.  Within all major firms all projects, products, and business units are evaluated on the basis of numerical results.  However, in direct contrast, HR resists using metrics, almost like developing them was the equivalent of a root canal. 

HR is the last major business function to adapt the widespread use of metrics.  The recent rise in the popularity of supply chain management has demonstrated how previously "low glamour" overhead functions (purchasing, warehouse and transportation) could move relatively quickly from obscurity to "profit center".  Their success coupled with the dramatic budget cuts required in the most recent downturn of the economy has spurned HR to realize they need to begin using metrics to improve their image and prove their value.  

Why Metrics Are Essential In HR

If you're still not convinced about the value of metrics, perhaps the following list will help sway your opinion.

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 met each, you send a quick but clear message that you did what you promised.

Metrics help you focus — Metrics help you manage better. They tell you what to do more of and less of.  They allow you to focus your limited resources on tools and strategies that have the most significant business impact.

Metrics tell you where to spend your money — If what you measure is also closely tied to your goals and your budgeting process (as it should be) results metrics will tell you where to increase and decrease but just spending and time allocation.

Metrics tell you what to stop doing – Quantifying and comparing the success of every program highlights to managers where resources should be cut and who should be punished or fired. Rapidly cutting under performing assets (and shifting them to high ROI programs) is an effective way of improving your efficiency and performance

Metrics eliminate confusion – Employees and managers receive so many mixed communications and messages that deciphering what is important can be difficult. Weighted metrics both define what is important and they also tell the person precisely what level of performance is expected. Metrics tell everyone what is a high priority. Without having to give a speech, metrics help focus everyone’s attention on the important issues.

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

They help push continuous improvement – Comparing results metrics between different time periods tells you whether and how fast you are improving. Metrics help focus recognition and attention on those programs that are continuously improving. It also gives stagnant programs a benchmark to compare themselves to.

Metrics allow you to come across as an expert – Experts are respected because they emphasize evidence and data rather over conjecture. To be credible, it is essential that you differentiate facts from opinions in your arguments. Specifically in technical departments (and anywhere within high tech and financial firms) “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”

Distributing metrics can change individual behavior – Only rewards change behavior faster that distributing ranked metrics to all. By ranking and distributing your metrics to everyone, you provide visible side-by-side comparisons that can be embarrassing to some and a challenge to others that are highly competitive. Both spur employees and managers into action.

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. In contrast, most find that changing a corporate culture is extremely difficult and slow, which inevitably slows the needed change in behavior

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.

Metrics can build coordination/ cooperation –Metrics that cross-departmental lines can encourage cooperation. When work is broken up so that parts of it are handled independently by two or more functional units, 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 shows demonstrates to both units their degree of interdependency.

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

Using metrics sends the message that you are “new school” – “Old school” HR professionals often carry a reputation of being resistant to metrics and to change. By using metrics (and also technology) you send the positive message that you think differently and have business acumen

Metrics tell you what to reward – If you work under a pay for performance system (we all should) metrics tells managers who and what to reward and punish. Incidentally, rewarding what you measure makes things happen much faster

Modern ERP and ATS systems make it easier – Because the best new HR software programs include analytics it is now much easier to find the data you need and to calculate the metrics. Some software even contain modules which can help you forecast trends and avoid errors.

Metrics can allow HR to provide evidence of its strategic impact – In many organizations, people costs are the highest variable budget expense.  Between 35 and 60% of all variable costs of corporations are people costs.  With people being that high of an expense, HR really has no choice but to prove it's economic value through the use of metrics. Nearly everything in HR can be measured but it's smarter to focus on the few items that have the biggest cost and the most impact.  If you can prove their value most CFO's will assume the rest of HR is operating efficiently. Most strategic HR metrics focus on productivity, recruiting, retention and employee relations. Of these, productivity is the most important. Whenever you can demonstrate to top management that you can produce one unit of your product or service at a lower labor cost (because of efficient hiring, retention, training or motivation) you will be a hero.  You don't have to demonstrate individual program effectiveness if overall worker productivity continually increases.

Metrics can demonstrate the dollar impact of HR programs – The language of business is money and dollars.  HR gets itself into trouble by getting into the bad habit of using other "language".  CFO's don't understand or appreciate the value of worker satisfaction or engagement; they do however understand costs and ROI.  It's not wise for HR to report its results any differently than any other business function.  HR should demonstrate that for every dollar spent, it produces increased results and output. It's possible to demonstrate the efficiency or impact of any HR program.  Below I have provided a few examples of the potential dollar impact of various HR functions.

• Compensation — demonstrate that highly paid workers produce more than workers that are paid an average wage and that giving a worker at 10% raise increases their productivity by more than 10%.  Tying worker pay  to their output or productivity always pleases top management
• Training — demonstrate that there is a high correlation or connection between the number of hours a worker receives in training and their productivity. Show that worker productivity increases immediately after they receive training
• Recruiting — demonstrate that new hires produce more than the average (already on staff) worker.  Demonstrate that your hiring process produced recruits that score at the very top of your performance appraisal scale. Demonstrate that the sales people you hire under your "new recruiting system" produce average sales significantly higher than those hired under the old system.
• Employee relations — demonstrate that malcontents and bottom performers become average or better performers within a year after employee relations deals with them.  Also demonstrate that your program identifies, fixes or removes bad managers rapidly
• HRIS systems — HRIS systems demonstrate their effectiveness by their impact.  By demonstrating the "before and after difference after technology implementation you can show that for example applicant tracking systems result in faster and better quality hires then prior to the implementation of the system.  You can also demonstrate HRIS impact through manager satisfaction surveys, which show how satisfied managers are with the efficiency and effectiveness of the technology.  If technological systems do not produce outputs or results that are a higher quality, cheaper or faster than non-technology systems, there's really no reason to implement them.

Formulating the dollar impact or ROI merely requires you to measure the before an after effect of an HR program.  Just show that performance increases after the program is implemented.  Another alternative is to do a split sample where you apply a new HR program to one team or division and not to another to demonstrate the relative impact of the HR program.  HR needs to act much more like a science and do a "split sample" in order to prove your impact beyond any doubt.

Common Objections To Metrics

Unfortunately, there still many in HR their resist the use of metrics.  The funniest thing about those that refuse to use metrics is that a large number of them come from an academic background in psychology. In college, psychologists are forced to “run the data” in every class they take, most schools even offer a version of statistics courses specifically tailored to their psych programs. Surprisingly though, once many industrial psychologist enter the HR function, they all to often claim that metrics are dehumanizing and reduce people to "just a number”. Go figure! Some additional reasons that HR professionals propose for avoiding metrics include:

Note: The rebuttal to each complaint follows the “excuse” after the “dash”

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

Collecting data is expensive – Over collection of data is common. 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 team in finding what information is already available

I don’t have a background in math or statistics – Most metric calculations can be done on an excel spreadsheet or with existing software.  Many organizations find that interns are great at doing metrics for you, after all they more recently completed a math course!

Too many metrics are needed – Don’t overdo a good thing. Keep the number of metrics below ten

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

Everyone likes and respects me already – Being friendly, building relationships and being available are 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

I’m just overhead… there is no output to measure – Great HR 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 HR.

Strategic HR Metrics That I Recommend

The following is a long list of the 27 individual metrics in 10 different categories that I would recommend for consideration by a large global organization.  These are all strategic metrics that are relatively easy to understand and the data needed to populate them relatively easy to acquire.

First-Tier Metrics

I) Overall workforce productivity – the very best measure of overall HR success is workforce productivity.  Any HR department that takes responsibility for improving workforce productivity is sure to be a hero among senior executives.  The key is to continually improve the ratio between the dollars spent on employee costs (wages, benefits and overall HR expenses) and overall company revenue.  Metrics in this category include:

1. The % improvement in workforce productivity – Improvement in cents spent on people costs for every dollar of revenue/profit generated (compared to last year’s ratio)
2. The dollar value of the increased workforce productivity between this year and last year

II) Recruiting – managers consistently rate recruiting in their top three things they expect from HR. Without overdoing it, here are some simple metrics that you can use to assess recruiting effectiveness:

1. The number of overall days that “key positions" were vacant (due to recruiting)
2. Average performance appraisal score of new hires (this year compared to last in the same job)
3. Manager satisfaction with new hires (survey of hiring managers, results compared to last year’s average)
4. The turnover rate of new hires within the first year
5. % of diversity hires in managerial and senior positions

III) Retention – retention is also a highly rated management issue. In this case, most turnover measures are too simple.  Potential metrics include:

1. Performance turnover in key jobs (where performance turnover means that top performer turnover is “weighted" more heavily and bottom performer turnover more lightly than average worker turnover
2. Preventable turnover in key jobs (where a sample post exit survey is utilized to identify the real reasons that these individuals left the organization and if the turnover could have been reasonably prevented)
3. Diversity turnover in professional, managerial and technical positions

IV) Overall HR costs – even though overall HR costs are relatively small compared to all G&A expenditures, it never hurts to have a metric to ensure that the dollars spent in HR or resulting in a continuous rated improvement of workforce productivity.

1. Cents spent on HR costs for every dollar of revenue generated (compared to last year)

V) Manager satisfaction – I recommend you use a forced ranked survey of line manager’s satisfaction with HR.  Within that survey managers are asked just one particularly important question, which is… "Rate each of these individual HR functions on how much they contributed directly to your business unit’s productivity and its success at reaching its goals?"

1. Average ranking of all individual HR functions in a all managers survey where managers are asked to rate all individual overhead functions specifically on their contribution to productivity and in helping the manager to meet their performance goals

Second-Tier Metrics

These metrics are still important but they tend to be less valued among senior executives.

VI) Compensation and benefits – rather than trying to use a statistical method to determine pay fairness, I recommend that you instead survey employees on their perception of pay fairness compared to work expectations.

1. the number of “cents” (insert your local currency here) in total compensation and benefits costs that it took to generate a dollar of revenue (as an indication of compensation effectiveness, where this year's ratio would be compared to last years ratio)
2. % of employees that are satisfied with their compensation (survey of a sample of employees on their satisfaction between the rewards and the expectations of the firm)
3. % of employees that are rated in the top performance appraisal level… that are paid above the average salary for their position and vice versa
4. What % of the average employee’s pay is “at risk” based on the employees on the job output

VII) Employee relations – the metrics focus in the employee relations area is on whether poor performing employees rapidly improve their performance or are terminated within a year.

1. Percentage of employees that report that they have a "bad manager" (survey of employees comparing this year's percentage to last years)
2. Turnover percentage of the bottom rated/ performing managers and employees within one year of receiving the bottom rating
3. % of bottom level performance appraisal rated employees that are on a performance management program
4. % of employees that are all in any performance management program that improve at least one level on performance appraisal ratings within 1 year

VIII) Training & Development – I recommend a training and development metrics focus on the aspect of learning, development and growth.

1. % of employees that report that they are satisfied with the learning and growth opportunities provided by the firm (survey of a sample of employees)
2. % of employees that report that they are satisfied with on-the-job learning, project assignment's for growth/ development and job rotations (survey of a sample of employees)
3. Percentage of employees that report that they are in the leading edge of knowledge in their profession (survey of a sample of employees)
4. Percentage of new hires that report excellent training opportunities among the top three reasons that they accepted the job

IX) Generalist activities – In many HR departments a significant percentage of all HR services are provided by generalists.  As a result, it is important to identify metrics that measure generalist’s satisfaction and impact.

1. % of Managers satisfied with generalists (survey of all managers that are serviced by generalists)
2. The average % improvement in workforce productivity (ratio of employee costs too dollar value of output) within the division's that each generalist serves

X) HR goals met – HR departments frequently set unclear and unquantifiable goals at the beginning of the year but that are seldom measured throughout the year and formally assessed at year-end.  In order to improve HR performance and ensure that HR professionals are focused on the appropriate goals and activities, it is essential that the goal assessment process be more formalized.

1. % of top priority HR goals that were met or exceeded during the year (goals are set, quantified, prioritize and approved by senior management at the beginning of the fiscal year)