Measuring HR's Bottom Line Impact

 

Measuring HR’s Bottom Line Impact:

HR Metrics That Matter:

Measuring the return on investment (ROI) of human resources (HR) activities within your organization has grown increasingly vital for HR professionals and business leaders to justify and manage costs stemming from having an HR function in the company by showing the impact and ROI of HR strategy and practice on business financial and operational goals. With HR leaders continuing to progress the profession into holding a seat at the C-suite table, the importance of HR leaders in demonstrating how HR contributes towards business value and produces an ROI continues to increase in significance and in visibility. 

Measure to Manage:

If you cannot measure it, you likely cannot manage it. Establishing and applying well defined and business aligned HR metrics within your organization enables HR professionals and business leaders to use key data and information in strategic and practical ways, such as in driving strategy and performance, facilitating discussion and decision making, strengthening shared focus on priorities, supporting expectations and applying accountability, highlighting performance gaps and performance improvements, and in justifying management decisions.

Top 5 HR Metrics C-Level Executives Are Most Interested In:

Discussions with C-level executives reveal a trend of HR metrics commonly viewed as being most important in evaluating effectiveness and efficiency of HR strategy relative to business goals. These five metrics include:

1. Hiring costs
2. Training & development activities
3. Compensation & benefits costs
4. Turnover rates
5. Accident costs

To use these metrics strategically and in a way that measures HR effectiveness and efficiency holistically across the organization and not just within the HR department, each of these five metrics must be aligned with business and departmental functional strategy. At the business level, HR metrics should be aligned with the strategy and goals of the company’s financial, customer, market and workforce strategy and goals. 

Traditional HR Metrics:

Traditional HR metrics are defined and commonly applied in a manner that may be measuring HR strategy effectiveness and efficiency relative to HR strategy effectiveness and efficiency. In concert with HR’s progression towards obtaining a seat at the C-Level table, broadening the definition and application of traditional HR metrics to holistically encompass business strategy and operations is paramount in capturing the business value of these metrics. 

• Absenteeism Rate
• Cost Per Hire
• Turnover Rate
• Total Cash and Non-Cash Compensation Expense per Employee
• Retention Rate
• Cost Per Training Hour

Measuring the Impact of HR Strategy Relative to Business Strategy:

Measuring effectiveness and efficiency of HR strategy and practice relative to business strategy equips HR professionals and business leaders with valuable insight on the ROI and value HR strategies and practices are contributing towards the business bottom line. Defining precise, valid and reliable HR metrics through collaborative cross functional departmental communications facilitates the development of business aligned HR metrics that support upward movement in business bottom line performance. 

Business aligned HR metrics are often established at the functional level of the organization and at the human capital level, both of which align with the business strategic level of the organization. At the functional level, HR metrics are aligned with strategy and goals of departmental groups such as research & development, marketing & sales, production & distribution, customer service and business support. At the human capital level, HR metrics are aligned with strategy and goals specific to hiring, managing and developing personnel, and training and retention. At the business strategic level, HR metrics are aligned with strategy and goals specific to financials, customers, markets, and workforce labor market trends.

 

Business Aligned HR Metrics:

Broadening the scope of traditional HR metrics to capture data that demonstrates the ROI and value that HR brings to the organization can often be accomplished through the application of the following:

Developing Strategic HR Metrics:

Consider the following tips in developing HR metrics that are strategically aligned with your business strategy:

Fundamentals Considerations

• Where do we want to be?
• What data do we need to capture and manage to get us there?
• Who should generate the data?
• When do we need it?
• How do we accomplish this most efficiently and effectively?

Applying a Business Perspective

• What drives revenue?
• Who are the major customers?
• What is our market share?
• How do our gross margins compare?
• Are earnings per share rising or falling?

 

For questions or commentary regarding this article, contact Kandor Group, Inc. at info@kandorgp.com  

Written & Published By:

Kandor Group, Inc. All Rights Reserved 2015