enior executives are not rigorously evaluating their company’s HR functions, according to a new study by EDS. And those same executives make decisions based on limited information and tend to form subjective impressions about their HR departments.
While the sample size for the study was small — 53 interviews were conducted in Canada and the U.S. and another 23 in Western Europe — respondents were vice-presidents or higher of companies with at least 15,000 employees.
It found that 90 per cent of U.S., Canadian and European companies evaluate their human resource functions primarily on three criteria:
•employee retention and turnover;
•corporate morale and satisfaction; and
•HR expense as a percent of operational expense.
About half of the executives believe there are critical dimensions of HR department performance that are not currently being adequately measured.
“The good news is that there is overall satisfaction with the functioning of HR departments today,” said Steve Bohannon, president of EDS Human Resources Services. “The bad news is that these opinions are based on subjective impressions rather than informed by sound performance metrics.”
Additional findings from the survey include:
HR is critical to the success of organizations.
The survey found that while human capital planning and strategy are the most valued contribution of the HR department, the strongest performance areas are in transactional and administrative functions such as payroll and compliance.
Measurements of HR performance are inadequate.
Of those HR areas that are measured, methodology and data reliability are questionable and there appears to be no real linkage to overall corporate performance. For example, EDS said less than half of companies use measurements such as revenue per employee or return on human capital.
Causes of poor HR performance include operational inefficiencies in processes and technology.
One contributor is inadequate funding and resources for ongoing administration deemed by respondents as the least valuable part of the work done by HR departments.
EDS said the survey results shows most executives praise their HR departments but are judging the effectiveness of HR with extremely limited metrics, especially since people costs account for up to 65 per cent of corporate spending. Developing better measurement tools will be critical to managing people costs and assessing overall HR performance more effectively.
“You can’t improve something you’re not tracking and measuring,” said Bohannon. “Several performance categories showed that inaccuracy of measurement was seen as the biggest obstacle to evaluating performance and effectiveness.”
EDS said companies may want to consider measuring a number of things to get a better picture of how HR is contributing, including:
•enterprise measures such as revenue per employee;
•plan and program measures such as health benefits cost per employee; and
•transactional or operational measures such as the number of paychecks processed accurately and on time.
The study, commissioned by EDS, was conducted by Rochester, N.Y.-based Harris Interactive. A total of 76 interviews were conducted with executives at the vice-president or higher level in 76 companies with at lest 15,000 employees.