How Does Your HR Measure Up

Does your HR function measure up?   How do you know?  Does it report headcount and turnover?  Or, does it tell you about the impact of HR processes as they relate to profit & loss? 

Human Resources, as a function, can have a significant impact on your companies profit & loss?   “No way”, critics say, “this is impossible, all they do is fill out forms and say no, that’s illegal.”  Of course, those critics have probably never experienced strong value-added human resources management in their careers.    So how does a good HR department measure and provide a return on HR processes and procedures?

Many HR departments will tell you they provide metrics on turnover, time to hire, the cost of hire, etc.   Those are great numbers that amount to little more than a statistic if simply reported.  It is what you do with those numbers that add value.  There is more to HR metrics than that.

Effective HR leadership is more than measuring, it is action.  Yet it has to be the right kind of action.  Often times your HR function is focused on cost reduction.  They must reduce the cost per hire, reduce the cost of labor, of benefits, and so on.  Task them to do that and a significant majority will do just that.   However, will that cost savings add value or will you use the dollars someplace else?  Will the savings grow your business? Will the savings just be a savings and no value is created – or – a decrease in performance occurs because you reduced the investment?

Chances are that savings and reductions won’t add value by themselves.  You have to properly use your HR function to drive business success, to focus not on saving dollars but to focus on employee productivity.  Anyone can save money and you don’t need an HR function to do that.  Building a high performing culture should bring your HR function to task to do just that.

Ask yourself, does your HR Department measure and report on the profit per employee (FTE or Full-Time Equivalent)?  Do they measure the impact of training of measurable outcomes such as performance and productivity?  Do they measure the quality of hire and their impact on business outcomes?

Challenge your HR function in this way;

  1. Tell them you want value-added metrics reported monthly. That you specifically want to know the impact of those on performance, profit, and productivity.
  2. When HR reports metrics, have them tell you what they mean and why they are important. Specifically, you want to know how to improve those that will provide a strong bottom line ROI. You need real metrics that actually focus on your business, not fluff numbers that might look good but actually hide opportunity.
  3. Hold HR accountable for the metrics they report. Yes, that includes turnover, time to hire, quality of hire, and the performance and productivity outcomes of training.
  4. Have them actively partner with your operations to identify key productivity drivers and develop sustainable ways of using them.
  5. Train HR leadership on business practices and measurements, as needed.

Some business owners and C-level leadership will see HR as a cost and reduce its staffing.  It is not uncommon for your HR staff to be as little as 1% of your operating budget, yet somehow you expect them to be accountable for the single largest cost of your business – its labor.  Your labor costs can sometimes be as much as 65% of your operating budget.  Getting the right HR leadership which includes high-quality staff to focus on the productivity of that labor, will add significant value to your bottom line.  That is a real value, not savings you use someplace else.

The effective and accountable measurement of your HR processes is critical to the success of your company.  Ensuring that you have the right accountability and participation from your HR leadership is critical to that goal.  It takes a commitment from not only HR but all of your leadership.  From them, your frontline workforce becomes the means by which you develop a sustainable and profitable competitive advantage that your competitors cannot duplicate.