RSM Resources

For dedicated human resources (HR) professionals, few things are more frustrating than being perceived as merely administrators.

Indeed,the manager’s mantra at some companies seems to go something like, "Get our open positions filled, file the forms and leave the strategic decisions to us." That’s typically not the case at highly successful companies, however. Research has shown that companies which incorporate HR responsibilities such as recruitment, deployment, performance incentives and employee satisfaction into the strategic decision-making process typically generate higher rates of return on their investment than companies that don’t.

If HR people want to become strategic business partners within their organizations and not just budget guzzlers, they need to bring disciplined business thinking to their roles, experts say. These days, disciplined business thinking includes metrics.

"Metrics provide the means for determining whether or not your HR function is actually helping your company achieve its strategic goals," says David O. Ulrich, professor of business administration at the University of Michigan’s Ross School of Business and director of the school’s Human Resource Executive Program. "What’s more, within the function, metrics help HR determine how to best spend its time and money to further those strategic goals."

Of course, not just any old metrics will do. Recent advances in information technology have created a multitude of tools for collecting and analyzing data. In fact, most companies may already capture all the raw data HR needs. But for metrics to truly add value to HR’s efforts,they must both align with the organization’s strategic goals and be "actionable."

"People typically want to measure those things that are easy to measure — not things that are meaningful," Ulrich says. "We measure how much we spent on training — but not how much that training contributed to the bottom line."

Measure what matters

Ever notice how much time referees spend measuring first downs in football? Ulrich does. He also likes to point out how little first downs matter in deciding who wins the game. It’s all about the score. The same could be said of much that HR tracks. Too often HR measures first downs and not points. In business, you score points by adding to your company’s bottom line. It’s all about the effect of your actions.

"We used to measure how many hours of training our employees received," Ulrich says, "because it was easy to measure. Now, if we can, we measure the impact of that training."

The first step in determining which metrics matter, experts say, is to review your company’s basic business strategy. Ultimately the HR metrics you select will measure activities within HR’s purview. In order for those metrics to be meaningful, they must align with organization wide goals and objectives. Although it is of little use for HR to concern itself with directly measuring profitability, for example, HR ought to be concerned with measuring how its activities affect profitability.

The next step in determining whether or not you’re zeroing in on the kind of metrics that matter to your company is to ask yourself whether or not they’re actionable. For example, HR departments often measure turnover rates. Although a spike in turnover might cause HR tore-examine its hiring processes, turnover itself is not something HR can control. If you can’t take action to affect what you’re measuring, from a strategic standpoint, it’s not very useful to measure it.

Finally, to really matter strategically, metrics must be quantifiable in dollars and cents. Rather than measuring turnover rates, for example, you’re strategically better off measuring the average time it takes to fill a position and the cost to the company each day the position stays open. Armed with that knowledge, HR can then make a good business case for allocating more resources to the hiring process to save the company money in the long run.

"If you can figure out the financial impact of what it is you’re measuring — whether or not it increases revenues or decreases expenses — then you put yourself in a better position to help your company meet its strategic goals," Ulrich says. "Instead of being able to show management how you’re helping HR and making HR better, now you’re showing them how you’re helping the company."

We supposedly live in the information age. But for many managers, it’s the information-overload age. After measuring what’s easy rather than what matters, the next most common HR mistakes are measuring nothing at all or measuring too much, Ulrich says. The latter may be the worse. If you measure "everything that moves," the most likely outcome is a pile of lengthy reports that no one is likely to read.

"You’ve got to remember, the reason for [measuring] HR metrics is so that you can show management the evidence that what you’re doing has an impact on the company," Ulrich says.

It stands to reason, then, that if no one reads the reports, management isn’t seeing the evidence. Conversely, if you don’t measure enough, there’s no evidence to see. What’s the right number of reports?

Some experts suggest four or five well-chosen metrics do the job. While no perfect number of metrics work for every HR department, simple common sense suggests some practical parameters to keep in mind when it comes to metrics.

"Somewhere between 5 to 10 percent of your HR department’s time ought to be plenty," Ulrich says. "If your HR people spent more than 10 percent of their time on metrics last month, you’ve got another whole set of problems."

One way to limit the time you spend compiling metrics is to explore data your company already collects for other processes or applications. Today’s information-technology tools offer amazing capabilities in terms of how you slice and dice the information in your systems.

In the end, incorporating sound package metrics can help your HR department earn respect as a strategic player in your organization and add to the company’s bottom line. It will also likely improve the department’s credibility throughout your organization. When management views the HR department as a strategic partner that bases decisions on facts rather than more subjective criteria, HR’s contributions become more visible and highly valued. Metrics may even benefit HR in ways unimagined.

"It’s been said that we get what we inspect, not what we expect," Ulrich says. "I think that applies to HR as much as to anyone else. When people begin to measure their performance, they pay attention, they become more accountable, and improvement follows of its own accord."