HR Metrics - Getting Your Department to the Next Base

One of our key themes this year is that when it comes to people and organizational performance, it's critical to measure what matters.  Helen Luketic is one of the leading thinkers on the subject of HR Metrics in Canada; she is Manager of HR Metrics and Research at BC HRMA, and she heads a brilliant and innovative benchmarking initiative throughout the province.  This is the first in a series of articles we will publish over the course of the year.  While Helen freely admits there still remains a disturbing absence of 'quality' metrics, there's still value to measuring and reporting other factors that set the stage for sustainable competitive advantage.

HR Metrics - Getting Your Department to the Next Base

What's more important: being known as someone who can hit a ball, or being known as someone who can score a run?

My friend Simon is a big baseball lover.  He's constantly telling me things about the sport that I don't really understand, seeing as I'm not a fan.  But, not long ago he showed me that baseball and HR are not all that different. He told me the story about Theo Epstein who became the GM of the Boston Red Sox and helped them win their first World Series title in 2004, after 86 years of going without.

Epstein used something called sabremetrics to create a winning team based on some key player statistics.  Sabremetrics is the analysis of baseball through statistics.  For example, analysis shows that batting average is meaningless in predicting whether a player is a good one.  Instead, a stat called "on base percentage" can tell you whether or not a player is likely to score a run and therefore win games.  In sum, if you choose a player with good results for all the right stats, you'll have a winning team.

Let's now apply this thinking to our world.  It's been widely documented that HR metrics are important and that HR needs to start measuring itself to prove it's relevant and should continue existing within the organization.  Now that you're convinced to do it, you're probably wondering:

• How to measure HR?
• How do you analyze the results?
• What do you do when the results are worse (or better) than your gut told you?

Step 1

Determine what's important to the organization- is it effectiveness, efficiency, or some combination of both?  Typically, HR will need to be as efficient as possible, but some organizations are willing to invest more to be effective.  What is the balance or weighting for your organization?  Imagine a scale, with efficiency on one end and effectiveness on the other.  Is that scale perfectly balanced or does one side of the scale tip further down than the other?  Assign a percentage based on the importance of either.  If efficiency and effectiveness are equally important, your weighting will be 50/50 and you'll know you'll need to equally focus on effectiveness and efficiency metrics.

Step 2

Consider including effectiveness and efficiency metrics.  Remember, you want to show the business you're adding value, so you'll want to stick to metrics that can be linked to the bottom line.  Consider the following:

Effectiveness*

• Human Capital Return on Investment
• Profit per FTE
• Cost of voluntary turnover
• Customer satisfaction rating

Efficiency

• HR FTE Ratio / HR Headcount Ratio
• HR Cost per FTE / HR Cost per Employee
• Labour Cost Revenue percentage

Step 3

Start collecting the data at regular intervals (monthly or quarterly) for at least a year.  The point being that in a year you'll figure out what needs fixing or scrapping.  Think of it as throwing spaghetti at the wall - if it sticks it's done and if it doesn't, keep cooking.  Also, after that year you'll get a feel for what the "norm" is and have an internal benchmark.

Step 4

Get benchmarking.  Yes, benchmarking is considered by some a questionable exercise because each of our organizations is so unique that it cannot be compared even to the competitors.  Here's the clincher about why your executives will always ask you for the benchmark regardless of your opposing opinion; it's not all about figuring out if you have the "right" number or whether or not your organization is doing well or "badly".  Instead, benchmarking is about learning the current trends and whether or not your organization is trending in the same way as the rest of the world.  For example, if you're seeing turnover increase and so is the competition, and even the rest of B.C., you know that it's highly unlikely that the organization has a unique retention issue.

Step 5

Create a target range for your department that takes into account the internal and external benchmark, and your corporate strategy.  Monitor your results against the target.  You can make it as easy as colour coding where green is within the range; yellow is slightly out of the range and where red is much (far) out of range.

Step 6

Tell your story effectively.  Start by developing a scorecard and analysis template.  Your template should always include a cheat sheet so everyone can easily translate the metrics.  For example, you might want to describe that Labour Cost Revenue percentage tells you how much compensation spend it takes for the organization to make one dollar in revenue and that it's preferable that this metric stays flat or decreases over time.

Your template should also have a pattern for responses.  For example, if the results are within target range, you will want to highlight the work you're doing to keep it there and other challenges you're experiencing.  Also be sure to include any threats you see on the horizon.

If the targets are in the yellow or red range, you'll want to describe why you're on alert, what you're doing to bring things back on track and your target date of when executives can start to see results on your action plan.  The metric results shouldn't be a surprise to anyone because you've been warning everyone all along, courtesy of your new communication tool, the scorecard.

Step 7

Now you're ready to play ball.

*BC HRMA members can email research@bchrma.org to learn more about these metrics and obtain a copy of the standard formulas.

About the Author:

Helen Luketic is the winner of the 2007/2008 Rising Star award for her significant contribution to the developing field of HR measurement.  Helen is focused on sharing this knowledge with HRMA members through a range of activities and services.