hr metrics

HR MetricsRohan Vishwasrao (eMBA 9140)

2

Agenda The role and application of HR Metrics

Why are we having this discussion?

Making the business case

5 Rules of HR Metrics

Steps in creating metrics that matter

Final comments

3

What are HR Metrics?

4

1

2

3

4

5

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

ESI

2005 2006

Employee Satisfaction Index

5

What are HR Metrics continued…

Who cares/Why are you showing me this?

How does it affect my business?

What can be done about it?

What are you doing about it?

6


Reason #1: This is part of our HR role in creating firm value

Reason #2: You will want to know how to use HR metrics given the trends in creating firm value

Reason #3: Hopefully you will be expected to know as part of your HR role

7


Reason #4: The timing is right

Reason #5: CEO’s want this

Reason #6: Knowledge of HR Metrics creates job security

9

What if you are able to identify you most productive and most engaged employees so that you can develop a strategy for retaining those individuals through the hard times? That's valuable

What if you have redesigned your performance management system and compensation structure so that you are only rewarding those that are performing? (Thus saving compensation dollars) That's valuable

What if you were able to manage talent shortages and surpluses? By understanding business cycles and tending to "talent pipelines" and current talent inventories, HR can act, instead of just react. That’s valuable

This is our time to SHINE…not WHINE!

10

Making the Business Case

• Human Capital expense is a company’s greatest expense

• Doing more with less

• Start small (low hanging fruit)

• Better decision making

• Eliminates confusion over what is important (linkage to strategy)

11

“After 30 years studying HR Departments, I have found the largest single difference between a great HR department and an average one, is the extensive use of metrics.”

Dr. John Sullivan , HR Metrics the World Class Way

12

5 Rules of HR Metrics Dollarize everything you can

Use the language of the enterprise

Use consistent metrics

Use meaningful metrics

Personally use metrics to manage

13

Steps in Creating Metrics that Matter

Step 1: Define Business Strategy

Step 2: Determine How to Execute

Step 3: Link HR to Strategy Map

Step 4: Create Measures

Step 5: Link to Strategic Business Results

Step 6: Set TargetsStep 7: Communicate Results

14

Facilitators

Processes

Products

Technology

Financial

Others

Revenue

Profitability

Market Share

Budget CostSavings

Others

Business ResultsEnablers

Vision and Mission

15


DashboardMetrics that Matter

contin

uous

monito

ring a

nd fe

edback

contin

uous m

onito

ring a

nd fe

edback

Relationships Linkages

Blueprint for Success

CustomerDrivers

Competing Factors

BusinessStrategy

CustomerDrivers

CustomerDrivers

EmployeeDrivers

OperationsDrivers

FinanceDrivers

“HR Managers must understand the firm’s strategy; that is, its’ plan for developing and sustaining an advantage in the marketplace”

Mark Huselid, Brian Becker, Dave Ulrich, The HR Scorecard

ABC will consistently deliver: products that meet or exceed safety standards; provide outstanding technical

services; and use leading edge technology in the retail/professional market to be recognized as the

number one provider of access controls manufactured in the India.

16

Step 1: Define Business StrategyHow do you do that?

17








18


IT

Operations

HRSalesMarketing

Engineering

ABC will consistently deliver: products that meet or exceed safety standards; provide outstanding technical services; and use leading edge technology in the retail/professional

market to be recognized as the number one provider of access controls manufactured in India

Why do most strategies fail?

19

Step 2: How to ExecuteHow do you do that?

How is our department going to assist in fulfillingour company strategy?

20








21

Turnover


Man

ag

e

Costs

CU

STO

MER

Focu

s

Reduce certainHR related costs

Effective HR Programs

World Class HR Delivery

Increase customer service skills in

workforce

SuccessionPlanning

HRProcess

Improvement

Create, modelBest practices in HR

Enhance HR StaffKnowledge

& SkillsIn Strategic Areas

Productivity

Retention

Increase employee satisfaction with

HR services

Enhance the value and return

On HR investment

Talent Development

Workplace PlanningImprove

Employee commitment

StrengthenRecruit

& hire of good fit

Strengthen RewardS &

Recognition Program

Enhance diversityAmong workforce

Increase Customer Satisfaction

Increase Customer Retention

HR MISSION: As a Strategic Business Partner, HR contributes to the Company's success by providing innovative HR practices to attract,

retain and engage high performance, diverse talent.

World Class Talent Development

22








23

What Measures are Important?

“The key is to measure both efficiency

(cost and productivity) as well as

effectiveness (quality and value) and

evaluate this mix of metrics in the context of

the drivers of demand for HR’s services.” Richard T. Roth, Atlanta, HR Magazine

24

Step 4: Create MeasuresHR Efficiency Measures

• Cost per hire

• HR staff per employee

• Days to hire

• Training cost per employee

• Accidents rates

What is wrong with using JUST efficiency measures?

25

Step 4, continued

HR Effectiveness Measures

• Quality of hire

• Employee satisfaction

• Training quality-Kirkpatrick’s four measures

• Number of hours consulting

• % of employees with certain knowledge

What is wrong with using JUST effectiveness measures?

26

Gap

HR Efficiency Measures

• Turnover by age, tenure, race

• Training level 1 evaluations

• Staffing ratios

HR Effectiveness Measures

• Turnover by performance

• Did behavior change on the job? Results?

• New hire performance at 90 days

27

HR Value Measures

• HR Expense factor=HR expense/total operating expenses

• Total HR Expenses/Total revenues

• Human Capital ROI=rev-operating exp-com/benefits

comp+benefits cost

• Revenue per employee

• Profit per employee

• Compensation budget variance

• Time to efficiency for new managers and employees

28

Turnover

Metrics that Matter

FIN

AN

CIA

L

CU

STO

MER

INTER

NA

L

LEA

RN

ING

& G

RO

WTH

Reduce certainHR related costs

HR Programs HR Delivery

Increase customer service skills in

workforce

SuccessionPlanning

HRProcess

Improvement

Create, modelBest practices in HR

Enhance HR StaffKnowledge

& SkillsIn Strategic Areas

Productivity

Retention

Increase employee satisfaction with

HR services

Enhance the value and return

On HR investment

Talent Development

Workplace PlanningImprove

Employee commitment

StrengthenRecruit

& hire of good fit

Strengthen RewardS &

Recognition Program

Enhance diversityAmong workforce

Customer Satisfaction

Customer Retention

HR MISSIONWe provide quality HR services to attract, develop, motivate and retain a diverse workforcewithin a supportive work environment. We do this with an emphasis on customer service

based on consultation and communication

HR VISIONProvide the highest quality support services to make XYZ the company of choice for learning and working.

Customer Sat %

Retention % among protected classes

Performance Rating at 90 days

Cost/hireHR labor/total labor

Revenue Per Employee

29








30


You must have a clear connection between your metrics and your

business results

31

Impact Example-Which ones do you care about?

Metric Direct Revenue Impact

Indirect Revenue Impact

Direct Cost Impact

Indirect Cost

Impact

32








33

When creating measures that matter, you must ask these

important questions:

• Is this company a people oriented or manufacturing business?

• Does the metric have an impact on results?

• Does the metric measure efficiency or effectiveness?

• What are your value metrics?

• What action will you be taking based on that metric?

34

Metric Pitfalls to Avoid

1. Collecting too much data so that you cannot focus on the metrics that matter

2. Relying on poor data

3. Focusing on metrics that are short term in nature like those preferred by Wall Street

Harvard Business School, Michael Sisk

35

“Firms that carefully link HR activities to business

strategy, measured by metrics have a 33% higher

return on total capital than organizations

that do not.”

Watson Wyatt Research 2003

36

5 Metric Must Haves in a Down Economy

1) Revenue generating employees/# Full time employees

2) Employee engagement index

3) % of employees with favourable performance rating

4) Management/staff ratio

5) HR Service Delivery rating

37

Most Common Metrics in High Performing HR Departments…

1) Revenue per employee (to see trends which will lead to asking "what happened there?")

2) Turnover/Retention by department, supervisor, performance, age, etc.

3) Recruiting: Cost per hire

4) Recruiting: Choose appropriate efficiency measure, response time, time to fill,

5) Recruiting: Average new hire performance rating

6) Total HR expense/total revenues

7) Company and departmental level employee engagement scores

8) Compensation budget variance

9) HR service delivery satisfaction rating

10) Training spend per Full time employee

11) Training: Appropriate results based metric after training i.e. customer satisfaction score

12) % of strategic competencies available in organization

38

If managers say that employees are their greatest assets, why do they…

39

Read their emails daily

40

Pay their bills monthly

41

Check their inventory quarterly

42

Service their machinery half yearly

43

Check Engagement & Performance of their people ONLY Once a Year

44

Impact: Human Capital practices have not caught up with financial management practices and are still tuned to the Industrial Age

45

Impact: And yet human capital expenses represents 77% of total expenses

46

Final Comments

Learn to create, interpret and manage with facts and data

HR metrics will continue to grow in demand and application

Constantly revisit what metrics are the most meaningful and have the most utility

Try it

hr metrics

Documents

link hr

business strategy step

hr role

knowledge of hr metrics

application of hr metrics

hr investment

hr scorecard15

hr departments