by Mike McCurdy,
GEA Executive Director
Lost in the Woods?
Have you ever been lost in the woods? It can be a scary experience. You take your bearings from a large oak tree in a clearing and start walking. Much to your dismay, you find the same oak tree again an hour later. Even if you have a good sense of directions, you can easily find yourself wandering around in circles. You need a compass and a map.
HR professionals can easily find themselves in a similar predicament. Maybe you have a “gut feel” for organizational problems – high turnover, too much absenteeism, over-use of FMLA leave. You implement policies that should move things in the right direction, but it’s tough to figure out if your initiatives are actually working.
HR Metrics: The Map and Compass
Data is the obvious answer to the predicament. Measuring the changes of key indicators provides evidence that your department and your organization are moving in the right direction. An HR Metrics system provides the map and the compass that you need to find your way out of the woods.
The purpose of an HR metrics system is to identify problems or opportunities, develop organizational goals and objectives, and define methods to achieve them.
Certainly, it’s necessary to do something, to choose a path, but there’s another difficulty. If you’re lost in the woods and suddenly remember the map and compass in your backpack, you can’t plot a route out without knowing where you are. If you look around, you can get a pretty good feel of the terrain. There’s a creek at the bottom of the hill and the land levels out on the other side. You know where you went into the woods and with a little study you can determine your location.
How do you find a starting point for your HR measures and for your initiatives? The process is similar to reading the map. You already have a sense of where the problems lie. Budget problems, declining sales or market share, and quality issues will probably be reflected in the initial measures that you take. HR-related difficulties and successes are directly related to the key performance indicators that your management team is concerned about. Measuring the right data on a consistent basis and tracking the changes will provide evidence that your initiatives are working or signal that you need to alter your strategies. The same metrics can inform the management team and help them with their decisions.
Improving HR metrics will directly impact the KPIs. You know this intuitively, but it will show up in the measures. An effective HR metrics reporting system will provide insight and value to managers who are running the company. Declining turnover rates should correlate with less waste, higher revenue/employee, and increased customer satisfaction. A decrease in the absenteeism rate and less overtime has a direct effect on variable costs and the labor component of Cost of Goods Sold.
Choosing the Path: What do You Measure?
In today’s data-driven business world, there’s no shortage of opportunities to measure. In most organizations, data isn’t the problem. Selection of relevant data is.
Here are some HR measures that directly relate to business KPIs:
- Cost/hire – The real cost to hire new employees. This measure can indicate both the efficiency of the hiring process and the level of competition for employees.
- Time to Hire – The time required to fill a position indicates both the efficiency of the recruitment process and provides insight into the difficulty of filling certain slots.
- Revenue /Employee – An indicator of organizational efficiency and quality and a way to benchmark against competitive or similar businesses.
- Absence Rate – Increasing or decreasing absence rates can be an indicator of employee satisfaction with their work. If correlated to short or long-term disability or workers’ compensation leave, changes in absence rates may indicate safety or training issues.
- Turnover Rate and Costs – Measurement and categorization of turnover can provide valuable insights to the quality and stability of your workforce. Early turnover or failure to complete a probationary period can be very expensive. It usually takes 6 to 12 months for a new employee to reach an optimum level of productivity.
- Tenure – What is the average length of service? Does it vary from department to department? High-performing tenured employees contribute to efficiency, increased productivity, and continuity of the company culture. You’d prefer to see low-performers leave and high-performers stay.
HR Measures Make an Impact
In all likelihood, you’re not lost in the woods at all. In fact, your sense of direction or “gut feel” may very well be correct. There’s an important point to consider, though. Today’s companies are run with hard quantitative data, not gut feel. Even if you’re not lost in the woods, data and measurements will prove the correlation between the initiatives your department undertakes and improved performance for your organization.
In Part 2 of this article, we’ll look at another aspect of HR Metrics that directly affects how you and your HR team are perceived by C-level executives that make the decisions for your company. Visit again next week for Part 2 – Getting Out of the Woods: How HR Metrics Contribute to Decisions and Success.