Table of Contents
- How HR measurement should be positioned
- The HR measurement problem in a nutshell
- The value of robust measurement and analytics in HR
- Understanding what makes and separates HR measures that matter
- Asking the right questions
- Testing and analyzing HR metrics against business outcomes
- Relevant Practices & Tools
Reviewing metrics and reporting from HR sites across the internet, one gets the sense that most of them promote the same guidance, focusing on traditional HR processes and activity metrics. Even when those assess managers’ and employees’ activities, they seem overwhelmingly related to their compliance with policies, adherence with procedures, and completion of tasks. Producing and reporting on HR measures that matter and drive quality decision-making by HR and business stakeholders remains a significant challenge for companies of all sizes and scales.
Consider the contrast with other corporate functions that measure and regularly report on how the business and its line managers are performing against objectives (e.g., sales goals, revenue generation, supply chain expenses), and managing resources in ways that are proven to lead to desired financial or operational outcomes (e.g., product promotion impact and timeliness, time to market, production volumes, distribution speed). HR too often measures process efficiencies (e.g., participants per learning event, recruiting candidates per posting). While those hold interest and value for managing HR operations efficiently, they matter little to most line managers. And therein lies the problem.
The HR measures that matter drive decision-making that 1) informs leaders what is happening in their operations and why, and 2) objectively informs management actions and direction.
How HR measurement should be positioned
The primary purpose of HR metrics, analytics, and reporting is to support decision-making by objectively clarifying:
- What is happening (trends, events, or occurrences)
- Why it is happening (root causes)
- How extensively it is affecting operations or objectives (business impact)
- What can be done to address it effectively
That means reporting on HR measures that matter to business leaders is associated with, and supportive of, an outcome-based HR approach, designed to optimize HR direction and strategies to achieve stronger alignment with the business and its priorities.
It is a key element in building HR’s credibility, demonstrating its alignment with the business, communicating its value-add to business operations and objectives, and, when used to define and adapt HR goals and initiatives, serving as an essential foundation for a strategic business partnership. HR measurement that focuses on the outcomes of its many processes and actions assesses and tracks the extent to which the HR team and its strategies contribute to the organization’s commercial, financial, and operational success.
And we know this to be true, as evidenced by a wide body of industry and academic research that consistently finds that, when measuring the talent outcomes of highly effective HR efforts and evaluating them against business, financial, and operational outcomes, objective evidence of its contributions can be established. Both direct and indirect links between high-impact HR activities and substantially higher financial, customer, safety, quality, and shrinkage measures have been shown, including research by Deloitte that found that organizations with highly effective HR functions are well over twice as likely (2.5X) to outperform their peers financially.
The HR measurement problem in a nutshell
Assessing the business impact of HR remains something of a “holy grail” for many HR teams. It starts with an inability to connect HR services and programs to specific business objectives, which over half (50%) of companies report. Even more concerning, fewer than 15% of HR functions can explain how their policies, practices, or programs are designed to impact business goals.
The issue is widespread, as LinkedIn reported that only 9% of companies have developed even a preliminary understanding of which employee characteristics or elements of their HR offerings and activities drive or contribute to organizational performance. And that lack of interest and ability to communicate those shows up in leadership perceptions, where only 27%-30% of executives understand that HR impacts business outcomes. Perhaps worse, only 53% of HR leaders themselves believe their efforts had a business impact.
The reasons for this problem are many, including the need for HR teams to a) access and integrate HR and business data, and b) apply advanced statistical and related methods to develop HR measures that matter to the business. However, the key to producing HR measures that matter is moving beyond basic metrics and to analytics that answer questions critical to improving and sustaining operational excellence and highlighting the impact of HR initiatives on organizational performance.
The value of robust measurement and analytics in HR
The reasons for developing and deploying HR measures that matter to leaders and line managers are plentiful, driven by their value in providing a more objective understanding of trends, events, and relationships among people, strategies, and business outcomes.
- Emphasizes the use of fact over gut feel and encourages an enterprise-wide reliance on objective decision support.
- Identifies otherwise invisible or blurred trends and occurrences.
- Demonstrates consistency by using the “language” common to all corporate functions—quantitative indicators.
- Builds HR’s credibility with business leaders and managers.
- Leverages the availability of reams of data generated by HR, operational, and financial systems to increase their ROI.
- Helps identify better ways to assess employee performance and contributions by analyzing the data collected from a multitude of corporate technology platforms.
- Enables more objective evaluations of organizational strategies, initiatives, and changes.
- Supports more accurate workforce planning and resource allocation.
Think of this in terms of how other corporate enabling or support functions add value—by leveraging data and analytic techniques to help leaders and managers assess their operational processes and resource utilization. The focus is on the factors that directly impact their achievement of business objectives, rather than seemingly disconnected sub-process efficiency measures.
Understanding what makes and separates HR measures that matter
HR measures that matter to leaders and managers are built on a standard, progressively more sophisticated framework of metrics and analytical approaches. The nature and choice of metrics and analytic insights will differ based on organizational strategies, maturity, and leadership culture, but the HR measures that matter most to leaders and managers tend to be more advanced within each of these two primary considerations:
A) What is being measured
Business measurement across operational and enabling functions covers three levels of measures related to how work is performed and evaluated:
Efficiency
How well processes are conducted from the perspectives of time (speed, schedule) and resource utilization (minimized waste and errors).
As applied to HR measures, these include time-to-fill, cost-per-hire, learning program completions, and on-time performance appraisal completions.
Effectiveness
The quality of the output and how well it achieves its purpose and objectives for which a specific process, practice, program, or platform was designed. In HR terms, it assesses the extent to which the process, practice, or program enhances employee behaviors, skills, and contributions.
Examples include performance management (% improvement in YOY ratings), leadership development (% growth in leadership competency ratings), L&D (% of employees with new skills or higher proficiency ratings), or total rewards (% of critical-skill and HiPo employees with salaries 5% or more above market rates).
Impact
The effect, difference made, or value generated by HR efforts on organizational performance. In HR terms, this is used to assess the extent to which a process, practice, program, or platform affects or influences a critical business, financial, or operational outcome.
Examples involve measures that reveal the extent to which an HR offering impacts revenue generation, profitability, expense management, market share, customer satisfaction, production quantity, or product and service quality. This represents the ultimate set of HR measures that matter to top experts, as it assesses the value HR delivers to the end user or the business.
B) The insights the measures provide
Four categories of measures, each with progressively greater sophistication, are used to support decision-making with increasing accuracy and value. While they also involve more advanced analytical and statistical techniques (a common skill and capability gap), HR teams in organizations large and small can overcome this gap by outsourcing or partnering with experts. The types of HR measures that matter include:
Descriptive – What is or has happened
“Lagging” measures that quantify events, occurrences, or trends after-the-fact. They use the most elementary statistics to describe the data patterns, such as their central tendency (averages, medians), dispersion (range, degree of variability), or frequency (counts or percentages of different activity or response categories).
Diagnostic – Why something is or has occurred
Explanatory measures that reveal the potential root causes of an event, occurrence, or trend. They rely on basic analyses that compare multiple employee variables to identify trends and common themes in the data. A primary example is turnover, where an analysis might reveal a higher incidence of people leaving who are early-career, received low merit increases, or rate their managers' effectiveness as poor.
Predictive – What is likely to happen or occur
“Leading” measures that indicate the likelihood of a future occurrence or trend. These primarily use advanced statistical techniques to determine how, and how much, an HR activity impacts a specific occurrence or trend. Examples include how managerial ratings predict employee turnover or engagement, how performance management ratings influence team outputs, and how participation in leadership development activities influences managerial and unit performance.
Prescriptive – What should be done to address the issue
Advanced measures that assess and generate recommendations based on historical patterns associated with high-performing, effective, and efficient processes and programs. These are developed using advanced algorithms, AI and machine learning, computational modeling procedures, neural networks, and decision-tree analyses.
Asking the right questions
An essential element and objective of developing HR measures that matter is to shift from measuring HR and talent operational process activities to strategic or business-impact metrics and analyses. That involves a critical cognitive shift in the mindset and approach of HR metrics and reporting teams—from robotic reporting of standardized, easily benchmarked metrics to a more fluid and responsive approach: exercising curiosity and asking questions that move from the “what” to the “why,” "where," and “how.”
That is differentiating, and can be a powerful contributor to operational success. Research by McKinsey demonstrated that high-performing HR teams focus 60% of their measurement efforts on strategic metrics. Reporting on HR measures that matter to business leaders and managers answers the questions they need to make decisions and care most about. Using analytic techniques to identify employee behaviors, capabilities, and activities that affect critical business, operational, and talent outcomes helps inform targeted improvements to those. At the same time, evaluating the HR activities that impact those helps justify their investments and identify non-value-adding activities and staffing that can be changed, streamlined, or eliminated (except those associated with legal compliance).
With an eye on focusing on measuring talent outcomes and their impact on achieving business and operational objectives, the shift requires asking better, more powerful questions. HR measures that matter emerge from efforts to answer those questions. Some samples are below.
Function or Process Efficiency Focus
Process or Area | Traditional HR Process & Activity-related Metrics | Questions that Leaders/ Managers Care About |
Workforce planning |
| Do we have the capabilities needed to execute our strategies? What are our skills gaps? What is the right number of employees (by function, role, skill, location) that we will need as we adopt new technologies, work methods, products and services, and processes, or adapt to market conditions? |
Onboarding |
| How quickly are new hires getting up to speed/full productivity? How well do they understand and accept/buy into our company's mission and values? How well are they adapting and adjusting to our cultural and behavioral expectations and standards? |
Recruiting |
| Are we attracting and hiring the best and brightest candidates? How accurately are we assessing them (fit, future performance, potential)? Do we have enough qualified candidates from which to pick the best, and how often are we forced to settle for less? Are we hiring enough people to keep up with work production demands? |
L&D |
| Are we developing the skills needed at scale to adapt to and respond to market changes and evolving work methods? To what extent do the various learning programs and approaches impact performance and productivity? |
Performance Management |
| Are we guiding and motivating top performances at scale? How well prepared are employees to adapt to changes in work methods, tech adoptions, reduced staffing, or rearranged assignments? What managerial practices, skills, and behaviors contribute to more employees earning higher ratings and exceeding their goals? |
Succession Planning and Management |
| How many unique candidates are named per key role? How accurate are our assessments of future leaders? How many of them actually progress to higher-level roles? How deep are our succession benches at multiple levels below? How many successors are ready now? How many roles were filled by named successor candidates What critical skills (aggregated) are missing or in short supply? |
Leadership Development |
| How well are we preparing them for future challenges? How effective are the early leadership development programs preparing HiPos to succeed in future roles? How effective are the programs and approaches in filling critical skill and experience gaps (individually and aggregate)? |
Health and Safety |
| How stressed are our workers, and how does that impact their productivity and performance? To what extent do our wellness and wellbeing programs and resources impact employee contributions? Regrettable attrition? |
Total Rewards |
| How well are we paying our top performers, critical skills, and HiPo employees relative to the market? To what extent do our pay policies and strategies actually impact performance, productivity, and retention? What is the utilization rate of our EAP and wellness benefits relative to physical and mental health claims experience and premium rate growth? How do our financial wellness resources impact employee savings plan participation and contributions? How does that in turn impact high performer retention, engagement, and productivity? |
Talent Outcomes Focus
Process or Area | Traditional HR Process & Activity-related Metrics | Questions that Leaders/ Managers Care About |
Employee Engagement |
| To what extent are engagement scores related to individual performance? Team and business unit production volumes, quality, and productivity? Revenue generation and growth? To what extent are our high performers, HiPos, and critical skills workers contributing their maximum effort? Planning to stay? |
Productivity |
| What skills and proficiency levels differentiate employees who produce higher work outputs? Higher quality outputs? Which managers consistently generate higher team output quantity and quality? What skills, capabilities, and behaviors separate them from others? Which investments in talent management processes and programs generate improved business and operational performance returns? |
Employee Experience (EX) |
| Which work or administrative processes and practices are creating complaints and delaying their focus on accomplishing goals and completing assigned work tasks? To what extent is EX impacting unit performance, staffing levels, quality, quantity, and/or timeliness of work output? |
Innovation |
| How well are we enabling and generating new ideas, work methods and processes, products, and services? What actions or programs actually generate measurable improvements in operational savings, productivity, revenue generation, customer satisfaction, and loyalty? How are cross-functional collaboration projects and practices, and processes impacting innovative solutions that generate meaningful and visible business outcomes? |
Development and Mobility |
| Are our best or most critical performers adding strategically important skills and proficiency levels? To what extent are strategically-critical skills gaps being filled? By which L&D programs or processes? Which learning modalities (e.g., live, eLearning, self-paced, social, experiential) are related to or directly impact (by themselves or in combination with others) employee or team performance, productivity, innovations, sales, or customer outcomes? To what extent are moving/promoting/deploying people across functional and business unit lines impacting expertise and collaboration? |
Retention |
| How well are we retaining the most valued employees – high performers, high potentials, critical role holders, key management team members? What are the critical business and talent factors that support retention or drive turnover of our most valued employees? How well does the organization emphasize and support employee development and job autonomy? Provide sufficient resources and tools? Proactively monitor and manage leadership and managerial effectiveness? Support wellness and wellbeing? |
Workplace culture |
| To what extent does our culture foster or restrict ideals such as openness and new ideas, transparent communication, belonging and inclusion, collaboration, coaching and development, resilience to change, innovation, customer focus, and business alignment? |
Testing and analyzing HR metrics against business outcomes
The process of implementing HR measures that matter to business and operational leaders starts with curiosity that leads to questions that help understand not only what is happening, but also why, how it will impact the business, and what can be done to leverage strengths or remove barriers to success.
The key is to identify high-impact HR practices by analyzing their statistical relationship with targeted business, financial, and operational outcomes. The result establishes critical HR and management activities that can be targeted for optimization to highlight and report the function’s impact on a continuing basis.
Some examples of HR measures that matter to leaders and managers include:
Organization design and efficiency
- Employee staffing level-to-budget vs. product/service time-to-production or distribution
- Average span of control vs. output quantity/quality/timeliness
Productivity
- Revenue or profit per employee
- Total staff cost per unit of sales or production
Talent acquisition effectiveness
- Quality of Hire (combined index)
- Speed to competency or full productivity
- Performance ratings (calibrated)
- Average tenure/retention rate
- % named as successors or high potentials
Skills gaps
- % employees possessing critical skills vs. unit performance to goals
- % critical role job openings vs. unit performance and productivity
Performance
- Critical role and high performer ratings vs. unit goal performance
- % individual and team goal achievement vs. production quantity, quality, and timeliness
Leadership and managerial effectiveness
- Employee engagement vs. team, function, or business unit performance
- Regrettable turnover vs. staffing to operating budget
L&D
- Skills acquisition and proficiency growth vs. unit financial, operational goal performance
- Employee skill and proficiency acquisition vs. strategic objective achievement
Relevant Practices & Tools
Emerging HR Metrics and Reporting Practices to Drive Situation Assessment and Actionable Insights for Managers and Leaders. >
HR Metrics & Reporting is a standardized and structured experience for both developers and users of the data and reports... more »
Deploying Advanced Statistical Methods to Better Assess and Predict Trends in HR Processes, Policies, and Programs. >
Deploying advanced methods involves moving from descriptive or basic mathematical metrics to more sophisticated techniques that provide more meaningful analyses and reveal relationships or predictions between processes, programs, behaviors, and their outcomes... more »
Understanding Business Strategies to Align the HR Direction. >
Core to the development of an HR strategy is building an understanding of the key business strategies and initiatives that must be accomplished during the term of the plan... more »
Performing Workforce Segmentation Analysis to Identify the Most Critical Future Headcount Needs. >
A workforce segmentation analysis enables a view of the positions that have a disproportionate impact on the meeting of key strategic objectives... more »
The Process to Outcomes Translation Tool: Convert HR Strategies and Processes into Representative Metrics. >
The Process to Outcomes Translation tool is designed as a guide to creating metrics that represent HR's impact on the business... more »
