The measure of a function

Decisions are made in the business world depending on the numbers. The problem is HR often doesn’t have any.
By David Brown
|Canadian HR Reporter|Last Updated: 11/13/2001

It is one of the most important rules of the business world — what gets measured gets done — yet many people in HR still don’t follow it.

Business decisions are made based on hard data. But new research shows human resources professionals often aren’t collecting data on what they are doing. It is, say HR experts, at least one of the reasons why so many HR professionals continue to find themselves on the outside of decision-making circles looking in.

A new study of Canadian human resources professionals —

HR’s Quest for Status: Fantasy or Emerging Reality?

— conducted by

Canadian HR Reporter

and consulting firm Watson Wyatt Canada, reveals that while many HR departments are anxious to play a bigger, more strategic role in their organizations, they have been slow to adopt practices to capture and assess its contributions.

Nearly 40 per cent of HR departments don’t even have a documented HR strategy, and for the 60 per cent that do, efforts to establish metrics to assess performance against that strategy are less than overwhelming.

Turnover is the most popular gauge of HR performance, with 58 per cent saying they monitor employee turnover “a lot” or “always” and another 55.7 per cent said they use employee surveys with that frequency. Fully 20 per cent said they use surveys “a little” or “not at all.”

When it comes to other less traditional HR measures, like revenue per employee for example, the numbers are considerably lower; just 20.2 per cent of HR departments are tracking those trends. Slightly more than 26 per cent said they compare revenue to employee compensation.

A primary goal of the study is to explore how far HR has come in its quest to participate on an equal footing with senior management in strategic business planning.

The findings from the survey of 539 Canadian organizations reveal HR is largely being left on the sideline when it comes to crafting business strategy with just 36 per cent saying they have “complete” or “a lot of involvement with in developing business strategy. (For earlier coverage see

CHRR

, Nov. 5 or www.hrreporter.com)

This is a critical time for HR to prove to colleagues and peers that it can bring numbers to the table and, equally important, communicate to everyone else the importance of those numbers to organizational performance, said Nancy Gore of Watson Wyatt.

Very soon human capital will become a business priority and CEOs are going to need somebody with expertise to take a leadership role, or at least guide decisions, about human capital and how they will affect the organization, she said.

If human resources is not already at the table it needs to be ready with solutions to human capital problems, said Gore. “If HR can’t respond once the CEO asks them for it, they will go to CFO and HR won’t be seen as a resource.”

The survey revealed that HR is playing a more strategic role, and respondents expect their roles as strategic contributors to increase but for the most part, HR professionals are still spending a large bulk of their time doing transactional activities.

There is no best practice or specific list of measures that every HR department should be ready with, said Gore. It is going to be different for every organization depending on the model and industry. Revenue per compensation dollar can be very telling, but it will have more meaning in a professional services company than in an organization with a lot of support staff, she explained. Conversely, measuring cost per employee would suggest the HR department is preoccupied with administration rather than revenue.

To be viewed as strategic players, HR professionals have to figure out what to measure, be very thorough about measuring it, and be able to translate the numbers and explain what they mean for the business, she added.

Even though turnover is most often tracked by HR, it often isn’t used properly. “By itself it (turnover) is not a good measure,” said Gore, since it says nothing about which employees are leaving, nor does it reflect what went on in the organization over that period when, conceivably, high turnover was unavoidable or even desirable.

It is likely many HR professionals recognize they should be doing a better job of tracking what their departments are doing, said Gore. So what is stopping them? Time.

“The crux of the matter in making the transition to be a strategic partner is that it is so hard to get out of the day-to-day firefighting,” she said. It is a vicious cycle of sorts: HR can’t find the time to prove it’s strategic value but won’t be asked to play a bigger role until it can prove it’s strategic.

Human resources professionals must do everything they can to break that cycle, said Gore.

Technology should be leveraged whenever possible. “With benefits for example, there is a huge opportunity to reduce ‘administrivia’ if employees can do things online themselves. There are still a number of organizations where generalists help employees fill in benefits forms. That is insane.” Similarly, HR needs to unload as much as many administrative tasks as possible in order to make more time for strategic work. Payroll for example doesn’t really need to be in HR, she said. If HR can hand it hand it off to finance, all the better.

David Guptill, vice-president of HR at Lafarge Canada Inc., agrees. To enable his team of just seven HR consultants to provide strategic support to an organization of 5,000 employees, payroll and benefits is controlled by the finance department.

Processing invoices and maintaining records and systems is the strength of the finance department, not HR, he said.

And while Guptill is very involved with the decision-making process and is held accountable for bottom-line performance at the construction materials supplier, he said it is very difficult to establish metrics that will prove the value of his HR department. Attempts to quantify the contributions of HR are very “mushy” concepts, he said. Consequently, HR to some degree is at the mercy of co-workers and superiors to appreciate what HR can add.

“The key metric has to be perceptions of superiors and do they perceive how HR is adding value,” he said. If somebody in HR works for a company that doesn’t understand how important strategic HR is, they should leave and find an employer that does, he said.

This approach means Guptill relies more on big picture results to determine how the HR function is performing. “In my performance incentive plan, I will be measured on the same metrics as my colleagues in operations,” he said. “One of the metrics has got to be in terms of your customer satisfaction.”

Traditional HR metrics measure activity, he said. The number of people put through a training program, for example. For the most part, that is probably the only accurate gauge of training there is, though there is not a great deal of value in it.

“There are very few generic HR metrics that can be driven solely by HR. What you are is the business partner of business unit managers. You have to go into partnership with them. One of the critical skill sets is to work with the business team almost seamlessly, to implement programs to address shortcomings.”

Turnover is also often measured by HR but it is not really a true indicator of HR performance, he said. “Yes, it is an HR metric, but is HR solely accountable for it? No. If it is high, it is an indicator that HR should implement programs with partners to address that.”

Anne Berend, senior vice-president of HR with Toronto-based commercial real estate company O&Y Properties Corporation, explained why she “rigorously” measures the performance of her HR department.

“I’m competing with five other areas for resources. I have to have some credibility.”

When a company is making decisions about where to put its always-scarce resources it relies on data to make those decisions, she said.

“I absolutely think that the way to get the attention of the business is measurement,” she said.

“The challenge for me is to make sure they (the rest of the senior team) understand why.” If a senior HR executive hopes to gain credibility with her CEO and other functions, she has to be “absolutely articulate” about what the data means to the organization, she added.

There are a number of areas where HR can gather valuable data on its contributions to the bottom line, she said, employee involvement and its strong connection to customer satisfaction, for example.

The key is interpreting the data in context of the business strategy so that the CEO understands how having those numbers will help the organization perform.

“You have to keep hooking it into an organizational view,” she said.

The HR team has to be able to clearly detail the importance of employee involvement to an improved organization bottom line. Once that case is made, “it becomes very hard for them to ignore it.”

HR metrics are valuable and HR will only gain the credibility it seeks, if the numbers it comes up with, whatever they are, are tied into the business strategy.

However, she said many people in her profession don’t understand that yet. “HR doesn’t seem to get that. I see it played out time and again.”

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