Using HR metrics

January 24 2005 - A report by The Conference Board suggests that while few (12%) surveyed organizations make significant use of HR measures to meet strategic targets, 84% of 104 HR executives interviewed in the survey say that they will increase their use of people metrics over the next three years.

"When determining how best to demonstrate achievement, human resource managers must choose from the hundreds of metrics that are currently available to track every aspect of an HR department's endeavors to recruit, develop, and retain employees," said Stephen Gates, Principal Researcher at The Conference Board and report author. "What's imperative for the health of their businesses, however, is that these HR professionals tie these people measures more closely into their efforts to meet their companies' overall strategic targets."

"Though widespread adoption has been slow, we all see that our best practice customers are beginning to use people metrics to understand and drive business decisions," said Lisa Hartley, Director HCM Marketing, PeopleSoft, which supported the research. "We've had great people data for a long time. It's just that it hasn't been presented in a relevant way. That is finally changing. We believe that the use of analytics is nothing less than transformational to making HR relevant to the strategic needs of the business."

Is HR up to the task?

According to the survey, a mere 31% of respondents felt that HR executives in their organizations had a strong understanding of strategic key performance indicators. Even fewer (25%) surveyed considered their HR leaders capable of linking people measures to such indicators or (16%) believed that HR professionals received extensive training to connect people measures to strategy.

51% of participants in the survey said that HR professionals in their organizations were partially capable of identifying talent critical for implementing strategy but only 22% said that those executives were fully able to identify strategic talent pools.

Effective People Metrics

HR professionals have tended to use metrics to study the time and cost of utilizing people, but they are more likely to:

• provoke discussions with managers that lead to action plans
• serve as educational tools that help bring implicit ideas about the value of human capital to the surface, and
• improve the HR decision-making process

when they are used to evaluate the effectiveness and impact of people investments and HR activities

Correlating popular individual measures with important perceived benefits can lead to a successfull linking of certain people measures to specific strategies. The Conference Board report cites the following examples:

• Employee satisfaction and competencies/training metrics were found to match a policy of customer responsiveness.
• Leadership and competencies/training measures were found to have solid connections to innovation strategies.
• Remuneration and leadership measures can help boost revenue growth.

But most of the organizations surveyed only partially tied their people measures and targets to strategic plans (52%) or annual budgets (46%). Half of the survey participants reported that their people metrics were fully or partially linked to customer data.

Making the case for people measures

Many respondents reported difficulties in implementing HR metrics with only 19% rating their IT systems highly for HR data gathering. There is also an issue of organizational politics since HR metrics have implications on performance ratings, prestige, power, and resource allocation. Many organizations were trying to build support for their HR metrics efforts through collaboration with colleagues from finance (54%) and strategy (45%) and employing business managers as champions for HR measures (43%).

According to Stephen Gates, "If people metrics highlight a problem that could be interpreted as critical of a business manager's performance, then the manager could be tempted to distort or suppress the negative data. When they point to a problem with HR's functional activities, then HR could also be motivated to hide negative data. In both instances, manipulating people data destroys the diagnostic power of the people metrics effort."

In 78% of surveyed organizations, people measure reports are delivered to senior management. In a few companies, business managers - rather than HR representatives - present information back to business divisions directly, greatly enhancing the credibility of the process with those divisions.

"However, the finding that only 19 percent of companies distribute briefings on people measurement to all of their business managers indicates that many companies do not view these reports as decision making tools for managers," said Gates.

Source: Measuring More Than Efficiency: The New Role of Human Capital Metrics Report #1356, The Conference Board

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