The Basics of HR MetricsApril 14th, 2014
Have you been reluctant to start using metrics because you feel you need to be a statistics expert? The most effective metrics are simple and use easily available information. Most HR leaders find that merely using metrics, no matter how simple they are, as the basis for their arguments gains them 75% of the credibility they need. So fear not. Using metrics can be easy and impactful.
Metrics fall into one of three general categories.
Efficiency – The first, and in many respects the easiest to collect, concern the efficiency of the HR function – how well HR performs its administrative tasks. Examples of efficiency metrics are: time to fill open positions, HR headcount ratios, and administrative cost per employee.
Efficiency metrics serve only as a starting point. If you’re not careful they can be turned against you by financial types who believe that less is always better. “If you’re driven solely by numbers that quantify, you’ll get yourself in more trouble than not measuring at all,” says John Boudreau, of the Center for Effective Organizations. “Cost ratios, costs per hire, turnover rates are linked to dollar values and carry the fundamental implication that you make them better by cutting expenditures. You get at the efficiency side of things, but it’s out of context without looking at the value-creation side.
Effectiveness concerns whether HR programs and practices have the intended effect on the people or talent pools toward which they are directed. In the case of T&D, true effectiveness metrics should offer information on whether employees build needed skills not just participation in training programs. Participation does not measure effectiveness. Other metrics could be how well pivotal jobs are filled.
Impact is about demonstrating a link between what HR does and tangible effects on the organization’s ability to gain and sustain competitive advantage. Operational effectiveness impact metrics might focus on changes in performance of business processes (e.g. reduced defects, increased speed, more frequent innovations) that occur when the quality of talent is improved or when new HR practices are introduced.
But beware of these commonly used metrics:
The challenge is getting the right data, having the tools to analyze the data appropriately and using the insights derived to drive change. To date, that’s been the exception, not the rule, for most HR functions, mostly because currently available data is limited in scope, focused on the wrong things, fragmented or incomplete.
So focus on metrics that are forward-looking and that alert managers about upcoming problems and opportunities. Each of the examples below report on current or past HR activities and no longer cut it in this new world of accountability. They don’t go far enough to create shareholder value and align people decisions with corporate objectives.
- Time to hire and cost to hire
- Number of training days per year
- Summary turnover percentages
- Satisfaction with courses and materials
- Number of internally developed leaders
- Cost of compensation and benefits
- HR staff per employee ratio
- Cycle time for HR processes
Without a doubt, mastering the art and science of HR metrics takes effort. But it can result in an elevation of the status of the HR profession and its practitioners by helping them to guide their organization in finding the sweet spot – the intersection between more profitable and more enlightened management and development of people.
Looking for more on this topic? Check-out our elearning course “HR Metrics and Dashboards” and earn 4 Business HRCI credits.