Friday, December 3, 2010

The 3 MOST Important HR Metrics





Sometimes you take a risk when you ask your audience for questions that will be answered on your blog. I have been asking my readers over the last few weeks to send me questions that they have about HR Metrics and Analytics.

Well Ben Eubanks, @beneubanks (on twitter) and who writes the UpstartHR blog sent me the question, "What are the 3 most important HR Metrics?'

Wow, thanks Ben for such an easy question...NOT!

First, I would say that the metrics that will make my top 3 list have to be those that demonstrate they measure impact and/or results for the organization based on their own strategic outcomes. . So, you won't see metrics like these on my top 3 list:

1) time to fill
2) cost per hire
3) overall turnover (the more granular this number is the better, turnover by performance, by generation, by engagement level is a better measure)
4) Training investment/per employee
5) HR staff/headcount

While the above metrics may be good tracking measures, they really don't give me the insight I need to understand if:

1) The human capital in the organization is performing at it's best and highest level AND IF
2) The HR department is providing the right services and right people to get #1 accomplished.

So, if I am limited to 3 measures only, here are the ones I would choose: (drum roll, please!)

1) Percentage improvement in workforce productivity. This relates to #1 above. I would need to see improvement for what I am spending on people (cost)/ to what they are bringing in ($ generated). I would like to see this tracked on monthly, quarterly and yearly intervals and compared to previous years.

2) Dollars spent on HR costs for every dollar of revenue generated. This metric relates to #2 above regarding efficiency of providing HR Services.

3) Engagement Index-I think this number is a leading indicator to customer behavior which directly impacts revenue and profits. So, this number is critical not only to understand how engaged your workforce is, but it is an important metric when you take the leap to HR Analytics.

Ok, so those are my top 3, what are yours? Challenge me on these, let's chat!

10 comments:

Michael D. Haberman, SPHR said...

Cathy - great post. However, the numbers you speak of, cost of people, $ generated, etc. are many figures many HR people will tell you they don't control or have access to. So how do you suggest they get that access to them?

Also, many people do not make a distinction between human capital costs (which are enterprise wide) and HR costs which many people view as the money the HR department is spending. For many people HR metrics are all about measuring the activities of the HR department as opposed to measuring the impact of people or human capital on the success of the organization. How do you get people to see the difference?

Cathy Missildine-Martin, SPHR said...

Mike:

Thanks so much for those great questions. It took me awhile to think about the answers as I wanted to make sure I gave a good response.

As far as access to data like cost of people, and revenue generated, you basically just become best friends with the CFO or Controller or have access to the balance sheet. By becoming a strategic player, you have to establish yourself as a business person that is also an HR technician. So, to this end, you will need this data. Making a business case to the holder of the data is important as well. Make sure they understand WHY you need the data and WHY it is important to the orgnazation.

To your second question... that is a very good question as well and one that I get a lot. It is sometimes difficult to distinguish between the two. But here is how I try to look at it. Looking at HR department related costs, is really looking at how EFFICIENT the HR department is at its internal service delivery and talent acquisition.

The human capital cost are just like you said, related to business outcomes and impact. In other words how is our investment (in people) performing relative to our stated revenue and profit goals. To me this speaks to efficiency (costs) and effectiveness (productivity).

These 2 areas are BOTH important to measure but understanding the difference is critical before you embark on any metrics initiative.

Thanks for commenting!

Luk Smeyers said...

Thx for your advice. Unfortunately, I don't share your opinion that your 3 measures are the most important ones. We need to make a difference between measures of 1) efficiency (your first 2 measures), 2) effectiveness (engagement? maybe?) and 3) business impact. The 3 measures that you are proposing aren't business impact measures. Unless you can measure what the outcomes/effect is of engagement on e.g. sales, revenue, customer satisfaction, work accidents, turnover, etc, they aren't very usefull measures. Efficiency measures (your proposed measures 1 & 2) are focusing on internal measures and will not bring you behind the famous 'Wall' (John Boudreau, 'HR hits the wall' in Investing in People). Anyway, thanks a lot for your thoughts. Kind regards from Europe, Luk

John Papers said...

Can you write more about "The 3 MOST Important HR Metrics"..
I am making a list of the "The 3 MOST Important HR Metrics"..
John..

Cathy Missildine-Martin, SPHR said...

Luk:

Thanks for reading and your comments. I agree with you entirely those measures on their OWN aren't going to tell you any great story of impact. Engagement is on the list as one that is necessary for other analytics. So we use engagement to be predictive about things like you mentioned turnover, performance, etc.

It is hard to pick just 3, actually there about 12-15 that I would use as just regular tracking type measures, mot to mention the analytics behind the scenes that are involved.

My end game is the same as yours....what drives business results in the human capital area. Which levers do we pull to increase results? That is the goal.

Tell me if you could only pick 3 measures, which ones would you pick and why?

Cathy

Luk Smeyers said...

Cathy, thanks for your answer. My answer to your question which 3 measures I could pick: it depends. I am advising organizations to pick those 3-4 that matter for them, depending on strategie, business issues, organizational change, etc. For some it's business impact of (too) poor diversity, for others it's developmental leadership as a driver of customer loyalty. For me, there's not such thing as: the best 3 measures...it depends! Anyway, was good discussion. Thanks a lot for your time. Kind regards from Europe, Luk

Jennie said...

I am curious to know your thoughts on HR analytics for the government sector.

Cathy Missildine-Martin, SPHR said...

Hi Jennie:

The government sector has really started to embrace HR Analytics due to recent budget and revenue constraints. So, I see more and more municipalities, city governments, etc. moving towards using their data to make better decisions and to make sure tax dollars are being used wisely. I see governments starting out in the HR efficiency area making sure HR is being run as cost effectively as possible while maintaining a good service level to employees.

If I can answer anything more specific please let me know....

Cathy

Mark Miller said...

Thanks for the thought-provoking post - I stumbled onto this blog and found it very insightful. After reading through your thoughts, I think they are right on, although somewhat difficult to track on a real-world level. How do you account for a lot of other factors that come into play with productivity (specifically $$ generated, which can be affected by the economic climate, competitor actions, etc.)?

This of course, is not a new challenge for HR and Training, but definitely something to consider.

One metric that our company, which uses a thinking and behavioral assessment (The Emergenetics Profile) has done is to connect a training session in with achievement of individual and team objectives. This has been interesting to track as some of the objectives are very bottom-line and numbers driven whereas others tend more toward relationships and effectiveness.

Thanks for the opportunity to comment.

Mark E. Miller
Director of Marketing
Emergenetics International
www.emergenetics.com

Cathy Missildine-Martin, SPHR said...

Hi Mark:

Thanks for stopping b and reading and commenting. You raise an excellent question regarding productivity and its drivers. I believe you are absolutely correct in that there are other external factors that could impact productivity. However, if you are tracking it consistently, you should be able to so those ebbs and flows in your data. Also, by isolating initiatives within the organization like training, maybe rewards, or others....you can perform statistical testing and see how much impact that has on productivity. Using regression you can see how a certain initiative impacts productivity. And you are right you will never will be ever to explain ALL the increase or decrease due to factors like you mention....but you will be able to see what the impact is for certain initiatives depending on the R squared you get when analyzing.

I hope that makes sense. I will check out your website to learn more about the Emergenetics Profile.

Thans again-
Cathy