HR by the Numbers: Use HR Metrics to Measure and Maximize Your Workforce's Strategic Value

Transcription

1 HR by the Numbers: Use HR Metrics to Measure and Maximize Your Workforce's Strategic Value Presented by: Ronald Adler Laurdan Associates, Inc. Jennifer Burdick CMK Associates, LLC Thursday, August 22, :30 p.m. to 3:00 p.m. Eastern 12:30 p.m. to 2:00 p.m. Central 11:30 a.m. to 1:00 p.m. Mountain 10:30 a.m. to 12:00 p.m. Pacific or For CD and other purchasing information, contact customer service at: or BLR and HR Hero Business & Legal Resources and HR Hero. All rights reserved. These materials may not be reproduced in part or in whole by any process without written permission. This program has been approved for 1.5 credit hours toward PHR and SPHR recertification through the Human Resource Certification Institute (HRCI).The Program ID number will be ed to the registered participant at the completion of the conference. For more information about certification or recertification, please visit the HRCI website at

2 HR by the Numbers: Use HR Metrics to Measure and Maximize Your Workforce's Strategic Value Presented by: Ronald Adler Laurdan Associates, Inc. Jennifer Burdick CMK Associates, LLC August 22, 2013 The Current Role of HR As organizations recognize the value of their human capital, HR management is increasingly expected to provide quantitative and qualitative information about: The valued added by the organization s human capital; How human capital increase competitiveness; How human capital helps the organization achieve its business objectives; and How to assess and manage human capital related risks.

3 HR Metrics: Question What is the best strategic HR Metric? HR Value Proposition [HR Leaders] must evaluate their value as created in the eyes of stakeholders customers and investors as well as managers and employees and focus less on what they do and more on what they delivery and build value-added HR practices and competencies that align with and help accomplish strategic goals. The HR Value Proposition, Brockbank and Ulrich

4 The Current Role of HR From management s perspective, HR should: 1) Demonstrate its ability to support companywide initiatives 2) Monetize HC related activities and results 3) Make the linkage between investments in human capital and organizational results 4) Identify and assess human capital related risks 5) Provide HC related information that allows the organization to make business decisions 6) Help link business decisions to the right results HR Metrics: A Tool in HC Management The goal of HR metrics is to help communicate the achievement of these goals and to provide predictive business intelligence. As Jac Fit-enz, noted scholar and HR metrics expert, notes: 70% of communications are persuasive in nature Success at HR requires using numbers to persuade others.

5 What Are HR Metrics? HR Metrics is Misnomer should be business metrics that measure the impact of human capital Standards of measurement to assess Human Capital value, costs, productivity, efficiency, performance and progress, and human capital outcomes HR Analytics: The use of data and trends to predict future occurrences and the help management make better decisions Key Performance Indicators (KPIs) Trends in HR Metrics Higher expectations for HR Professionals HR professionals must have necessary business acumen to achieve strategic objectives Increased use of HR Analytics Qualitative and quantitative measures to make decisions AND obtain desired results Increased standardization of the HR profession International standards Greater attention to risk assessment and management

6 Trends in HR Metrics Transition from Cost/Efficiency Formulas to Impact Analysis, Risk Assessment and development of priorities How does Human Capital contribute to the Bottom Line? What are the right levels of investment in HR? ROI & Cost/Benefit Analysis Assessing missed opportunities Why missed? Why Do HR Metrics Matter? Determine and measure risk exposure Risks: Inherent, residual, material Allow HR to communicate value Allow HR professionals to communicate, speak the business language Identify responsibilities and assign accountability

7 HR Metrics: Importance The recession refocused management s attention on revenue generation, asset value, expense control, cash flow, profitability, competitiveness, and risk management. Metrics play a critical role in ensuring that management s attention is focused on those factors that contribute to the organization s survival, sustainability, and success. Metrics respond to a growing list of stakeholders. HR Metrics: Limitations Unfortunately for HR practitioners, there are hundreds of HR metrics to choose from. As Albert Einstein noted: Everything that counts can t be measured and everything that can be measured does not count Thus the acid test of HR metrics: Do your metrics result in a so what or an Ah Ha response?

8 HR Metrics: Limitations An organization cannot possibly assign a meaningful financial value to an intangible asset like a motivated and prepared workforce in a vacuum because value can be derived only in the context of the [organization s] strategy. What a company can measure, however, is whether its workforce is properly trained and motivated to pursue a particular goal. Robert S. Kaplan and David P. Norton HR Metrics: Telling Your Story HR Metrics are about telling a story about your organization. Like other stories, your story: Must have context Should consider historical information (lagging indicators) Should report current information (coincident indicators) Should indicate possible future events (leading indicators and predictive analytics)

9 HR Metrics: Telling Your Story Your story: Should consider its audience (there is a growing list of internal and external stakeholders and users of HR metrics) Should engage the audience and motivate action HR Metrics: Telling Your Story What stories do your metrics tell about your organization s human capital and HR management? Question: Is anyone listening?

10 HR Metrics: Enhancing Communications Dr. John Sullivan notes that the reason few executives pay attention to HR is that most HR metrics are simply not compelling. He notes five Differentiators of Great Metrics Formal planning Compelling format Visibility Relevance Emphasis on dollar impact HR Metrics: Strategic-Business Context 1) How does your organization produce revenue? 2) How does human resources add value to your organization? 3) Are HR activities and employment practices aligned with your organization s strategic and business goals and objectives? How do human resources impact these objectives?

11 HR Metrics: Strategic-Business Context 4) What are your organization key business measurements and metrics? How does your organization measure success? What s on your organization s scorecard? General Rule of Metrics #1 : Organizations measure what they treasure. General Rule #2: What gets measured, gets done. General Rule #3: Critical metrics have an owner. General Rule #4: To have value, metrics should have a target to be compared to. HR Metrics: Strategic-Business Context 5) How do human resources impact your organization s key business measurements and metrics? 6) What are your organization s business imperatives, i.e., what distinguishes your organization in the marketplace? How do HR activities and employment practices impact these imperatives? 7) What are your organization s risks and opportunities? How do HR activities and employment practices impact these risks?

12 HR Metrics: Strategic-Business Context 8) What decisions do you want to influence? 9) Can you connect the dots between the metric and decision making? 10) What happens if your organization misses the target? HR Metrics: What Do Users Want? What do CEOs say they want? Maximize shareholder value Increase revenue Lower labor costs Improving the quality of hires Note: According to a survey by Staffing.org and the HR Metrics Consortium, new hire quality was rated by C-Level executives as the most important HR performance metric.

13 HR Metrics: What Do Users Want? CEOs (cont) Increasing productivity Reducing turnover Increasing employee ROI CFOs Financial performance measures, including: Labor costs The effect of labor on profits margins Operating cash flow as a % of net sales HR Metrics: What Do Users Want? Investors: -- Investment in human capital -- Retention of talent -- Leadership depth -- Leadership quality -- Employee engagement -- Human capital responsiveness -- Alignment of human capital investment with business objectives

14 HR Metrics: What Do Users Want? Risk Managers: Key issues: Severity, incidence, velocity or risk -- Level of compliance with employment laws and regulations -- Impact of loss of critical talent and top performers -- Impact of human capital chain disruptions HR Metrics: What Do Users Want? Government Agencies and the Courts: -- Level of compliance with employment laws and regulations -- Culture of compliance -- Compliance behaviors -- Enforcement record

15 HR Metrics: What Do Users Want? External Organization Benchmarks: -- Professional standards -- Industry standards -- Baldridge -- SA ISO Best places to work HR Metrics: What Do Users Want? Note: Benchmarking is the continuous study and process of comparing and assessing an organization s practices, processes, and outcomes against internal standards and external best practices. Benchmarking is a learning process that emphasizes improvement.

16 HR Metrics: Common Problems Are siloed; are not interrelated Typically viewed as discrete measurements Used to measure activities rather than results Based on the assumption that human resources are an expense Based on data that are inaccurate or untimely Measures inappropriate time periods HR Metrics: Common Problems Inappropriate level of analysis Failure to consider the internal and external factors, e.g., opening a new store or business cycles, that affect the metric and the analysis Incorrectly assigning accountability based on the metrics Liabilities are created by the data collected and by the data not collected The past may not predict the future

17 HR Metrics: Risks 1) May put the organization on notice of compliance deficiencies 2) Creates discoverable information 3) May create misleading or inaccurate information may lead to faulty decisions 4) May be compared to external standards and benchmarks Business Metrics: Commonly Used Metrics Total revenue Operating revenue Expenses Operating expenses (OE) Profits Net operating profits (NOP)

18 HR Metrics: Responding to Customers and Stakeholders HRCI: SPHR and PHR Body of Knowledge Core knowledge: Qualitative and quantitative methods and tools for analysis, interpretation, and decision-making purposes (for example: metrics and measurements, cost/benefit analysis, financial statement analysis) HR Metrics: Responding to Customers and Stakeholders HRCI: SPHR and PHR Body of Knowledge Provide data such as human capital projections and costs that support the organization s overall budgets. Perform cost/benefit analyses on proposed projects. SPHR only Develop and manage an HR budget that supports the organization s strategic goals, objectives, and values. SPHR only Must have knowledge of elements of a cost-benefit analysis during the life cycle of the business (such as scenarios for growth, including expected, economic stressed, and worst case conditions) and the impact to net worth/earnings for short-, mid-, and long-term horizons

19 Additional HR Metrics Other HR Metrics: 1) Time to hire, time to productivity, time to competence 2) Cost of Hire (see standard on SHRM website) 3) Revenue per FTE, Revenue per Human Capital Expense 4) Profit per FTE, Profit per Human Capital Expense 5) ROI 6) Turnover Rates 7) Turnover Costs HR Metrics: Acid Test Acid test of HR metrics: Do your HR metrics result in a so what or an Ah Ha response?

20 Questions? Ronald Adler, M.B.A., President-CEO Laurdan Associates, Inc Jennifer Burdick, President CMK Associates LLC Disclaimers *This webinar is designed to provide accurate and authoritative information about the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. *This webinar provides general information only and does not constitute legal advice. No attorney-client relationship has been created. If legal advice or other expert assistance is required, the services of a competent professional should be sought. We recommend that you consult with qualified local counsel familiar with your specific situation before taking any action.

21 Speaker Biography Ronald Adler Ronald Adler is the president and CEO of Laurdan Associates, Inc., a veteran-owned human resources management consulting firm specializing in HR audits, employment practices risk management, HR metrics and benchmarking, strategic HR, and unemployment insurance cost management issues. Jennifer Burdick Jennifer Burdick the president of CMK Associates, LLC, and is a human resources consultant and trainer specializing in customer service, equal employment opportunity compliance, and investigations and training for small, developing companies, non-profit organizations, and human relations commissions.