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Creating a Human Resource measurement framework that works

Creating a Human Resource measurement framework that works

By: Helen Gidlow and Rob Urquhart

Helen Gidlow and Rob Urquhart are associates of The Resolve Group (Pty) Ltd and can be contacted at hgidlow@resolve.co.za or rurquhart@resolve.co.za

1. Introduction

All too often human resource (HR) professionals undertake detailed and lengthy measurement activities of a variety of human resource practices, outcomes and processes, present it with a flourish to line or senior management, but find the same report lying virtually untouched a few weeks later. So why undertake a human resource measurement intervention in the first place if all it is going to do is reinforce preconceived notions of the human resources function as a transactional, low value-adding component of the business? The reality is that measurement can be very powerful, both as a strategic tool and in challenging these perceptions.

2. Key requirements

Three key elements must be clear and must be in place for HR measurement to become a strategic tool.

# Define and articulate the business case for HR as a strategic asset

The role of HR strategy in the organisation must be defined, and the HR strategy itself must be aligned to organisational imperatives. Defining the role of HR strategy in the organisation involves asking a simple question: Is there a business case for HR as a strategic asset? Most organisations and executive managers understand – albeit sometimes at quite a fundamental level - the role that people play in driving organisational performance, so invariably the answer is yes.

Detail how the value of the organisation’s human resources as a strategic asset may be fully realised. This involves mapping HR to the organisational priorities to create a measurement framework – in other words identifying what in needed from human capital strategically to meet organisational priorities (e.g. sales competencies in order to meet sales/revenue targets), and then defining how those are operationalised by determining what is needed to be done (e.g. ongoing assessment and development of training competencies.)

This step is important from a number of perspectives.

>> Firstly because by mapping your human capital requirements to organisational priorities you are both immediately prioritising what is required to be measured (so that you are not measuring for measurement’s sake) and aligning measurement so that when you measure, you will measure that which is most meaningful. (In the above example potential measures would be percentage sales staff receiving sales training or number of sales training hours.)

>> Secondly by operationalising the human capital requirements you are defining what it is that needs to be done – this energises the measurement process by creating an expectation and accountability for what needs to be done.

>> Thirdly by defining measures in terms of the human capital requirements that derive from organisational priorities, you are communicating to both line management and HR practitioners what it is that needs to be done. Your measurement framework therefore drives and focuses the right behaviours. Many HR practitioners reject measuring people related activities, arguing that measurement defies the complexities of human interaction. Such arguments are often a smoke screen for fears of what measurement may reveal, for measurement creates accountability.

# Ensure HR has the right competencies

As indicated earlier your measurement framework should also include an indication of how human capital priorities will be operationalised. This creates both an expectation from the organisation and accountability for the HR practitioner. For your HR measurement framework to succeed, HR must deliver on its outputs. What does this entail? Aside from having the competency to deliver on those outputs, HR must champion the measurement process by communicating to the organisation how HR is impacting on organisational performance, and by interacting with line to action the measurement results and demonstrate tangible change and improvements.

# Ensure the right HR practices and systems are in place

Remember that the purpose of the measurement intervention is to ensure that the organisation’s human capital is aligned with and helps to drive organisational performance. In this regard measurement is bound to reveal areas of poor performance and indicate actions that need to be taken. Identifying a need to develop sales competencies is all well and good, but the appropriate systems must be in place to deliver the necessary training.

3. Design the measurement framework

So how do you design an organisationally aligned measurement framework? To dispel the myth that measurement is difficult and can only be done by those who have a passion for numbers, the following process for constructing a scorecard (measurement framework) is suggested:

>> Define the strategic challenges of the organisation

>> Define the human capital requirements

We spoke about the first two steps earlier. Identify and list the strategic challenges, objectives and priorities for the organisation through conversations with both senior/executive and line management. For each of challenges/objectives/priorities identified, determine what the human capital requirements are – both strategically and operationally.

4. Determine the measures to use

Your measures will flow from the organisational priorities and human capital requirements that you identified in steps 1 and 2. Measures do not need to be complex but should consist of basic formulae and ratios (for example tracking employee initiated turnover involves dividing your total headcount by your total number of resignations.) Select only those measures that count, but don’t be afraid to use a number of different measures to track performance for a particular human capital issue. Build up a ‘scorecard’ by clustering measures that reflect on the same human capital requirement together.

Most importantly, you should identify a number of performance or productivity measures that appear at the top of your scorecard against which you can stack your range of human capital measures. By so doing you can track and therefore demonstrate how human capital is impacting on and driving the organisational priorities. These performance measures should reflect the concept of people in their formulation and could take a number of different formats depending on what organisational priorities are (for example cost per employee, sales per employee, profit per employee, level of customer satisfaction.)

Other measures that you could consider are:

>> Absence rate

>> Employee turnover

>> Training hours per employee

>> Remuneration/revenue

>> Customers per employee

>> Developmental training spend per employee

The potential measures for use are considerable, but should always reflect and relate to the organisational priorities.

5. Measure

The next step is to actually measure. Decide on how frequently you will want to measure and report (as you will want to demonstrate change over time), and determine at what organisational levels you will want to measure. Will you measure for the organisation as a whole only, will you measure for individual business units, or will you measure for particular departments? As you cascade measurement down organisational levels remember that different business units or departments may have different human capital requirements and therefore may require a different measurement framework. Remember too, that the intention is not to overwhelm but to provide easily accessible and meaningful strategic information.

6. Interpret the results and action them

The most important part of the process is to interpret and action your measurement results; it is only by doing this and communicating the outcomes to the organisation that you will move away from the trap of measuring for measurement’s sake. Your interpretation should: consider the results from various benchmarks together in order to provide a more informed and holistic interpretation; consider previous measurement results so that you understand how performance has altered over time; and should consider – where possible – how compare externally, i.e. how you stack up against others. Whilst other organisations or competitors may not have the same human capital and organisational priorities, by demonstrating external comparison and performance to your organisation you are demonstrating an appreciation for how human capital drives your organisation’s performance relative to others, and what competitive advantage in human capital management means.

7. Remeasure

The final step in your measurement intervention should be a remeasurement after an appropriate period of time. Remeasuring is important: it is suggested that your scorecard contains next to the space for recording the measurement results, additional space to record actions taken to influence the result, and the outcomes thereof. Those outcomes are the remeasurement results, and they demonstrate the extent of change realised by the interventions taken.

8. Conclusion: finding the balance

The HR function, today and in the future, need not be concerned about replacing the fundamentals of its trade with a focus on figures. Rather, the adoption of an HR measurement framework is about extending the credibility of HR on the one hand, and on the other placing human capital firmly and strategically on the organisation’s balance sheet. Measurement represents a powerful tool by which HR can change the way it works and the value the organisation perceives it to create.

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Gary Watkins

Gary Watkins

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