Research:
Developing Powerful
People Metrics
A research-based guide to using
HR metrics strategically
Does HR add value to the business
strategy through its development and
execution of the people strategy? If so,
what part do HR metrics play in this?
Orion Partners decided in 2009 that this question had been vexing their clients for too long, without clear answers or guidance on how to go about using “human capital management” metrics to inform and develop the
organisational and people elements of their business strategy, and monitor the execution of that strategy.
Orion set out to research what companies are currently doing to measure HR’s contribution to the business strategy, so that they could share with a broader community the learning others have gleaned from their attempts and develop an understanding of what works best.
Conducting this research has enabled Orion Partners to understand the potential for HR strategy and metrics based not on theory, but on the practical experiences and results of a wide range of organisations who have ploughed this field already. We show in this report how the research was conducted and what results were found.
Believing it would be less than helpful to stop at simply presenting back the results in a vacuum, the final section of this guide articulates Orion Partners’ point of view on what really matters in developing powerful people metrics
How the research was conducted
Establishing the key areas of focus
As the research methodology was planned, it became clear that for the results to be of tangible and practical use they would have to shed light on three distinct aspects of the use of metrics:
• What organisations measure
• How they decide on the strategy and the metrics, communicate them, use them, and keep them relevant
• What capabilities HR and line management need in order to make best use of metrics; mindset, skills and system requirements
Participating organisation profiles
A group of 20 organisations was selected to represent a broad range of industry sectors, sizes, and geographic reach:
• Sectors included financial services, retail, information technology, pharmaceuticals, packaging, automotive, metals and mining, and the public sector
• Sizes ranged from 4,500 to over 50,000 employees
• Most organisations had global reach and were headquartered in the UK, USA, Ireland, Sweden, South Africa and the UAE
Business strategy formulation and execution Metrics used HR efficiency HR effectiveness Benchmarking Trends How to set/review/ communicate metrics Speed to action Projects/initiatives
Mindset, skills and beliefs
People, systems and providers
Gathering the data
A structured interview was designed to explore the key areas of focus with interviewees, who were predominantly HR Directors, senior HRBPs and metrics or management
information specialists, but also included some senior staff from Centres of Expertise, Service Delivery and HR IT.
Through using this rigorous interview structure, the researchers enabled interviewees to:
• Provide contextual information about the organisation such as its size, HR FTEs, geographic reach and HR operating model • Outline their history of using metrics and the
value placed on them by the business and HR • Explain how metrics are selected,
communicated, kept up-to-date, and used by HR
• Distinguish between their use of metrics to:
- Inform and influence the development of business strategy
- Develop the HR or people strategy - Monitor execution of the business
strategy through the people strategy - Measure HR’s operational performance - Gauge the general state of health of the
organisation
• Describe what it takes in terms of mindset, skills and systems to make best use of metrics
• Rate their effectiveness in past use of metrics, and outline their aspirations for the future
The analysis
The interview outputs were analysed to identify common patterns and clear differences among participating organisations, across all areas of focus, and from these the key themes described in this report emerged. The anonymity of participants was preserved through reporting data back at an aggregated level only. Due to the sample size and diversity of the participant group, the focus is on narrative themes rather than statistical analysis.
The findings
In a nutshell
1. The organisations surveyed are at different points on the trajectory of sophistication in the use of HR metrics. The trend is to move from basic monitoring of organisational health, through measuring the operational performance of HR, to tracking, with very specific measures agreed with the business, the execution of the people aspects of the business strategy. 2. Beyond this trajectory is the truly strategic position, where organisations use metrics proactively to inform the creation of the business strategy. Very few organisations have reached this point in the journey, but it is the aspirational destination for all organisations surveyed.
3. The most powerful insights come from combining human capital management data with key business metrics and identifying the differentiating correlations.
4. There is no one-size-fits-all and powerful metrics must be crafted by each individual organisation with intelligence, intuition and common sense to address the specifics of its business strategy. There are some similarities in approaches within industry sectors.
5. Business acumen, analytical and
interpretation skills are core, but so too are relationship building, influencing, intuition, convincing storytelling, and timing.
6. For powerful use of metrics to exist, a fundamental belief in the value of hard measures in relation to people matters is as essential as the core skills and the systems capability to access relevant data.
The organisations surveyed are at different points on the trajectory of sophistication in the use of HR metrics.
General health
Historically, HR’s use of metrics was confined to standard organisational health measures such as headcount, turnover, sickness and other
absence rates, diversity metrics, including those required by statutory reporting. All participating organisations continue to monitor these
standard measures and a small number do no more than this.
HR Operational performance
Beyond that, some organisations use metrics to measure how efficiently and effectively HR itself is performing, for example looking at
transactional costs, error rates, cycle times, call resolution statistics, HR cost per FTE, HR:FTE ratios, and client satisfaction measures.
Performance targets against these measures are often built into Service Level Agreements between HR and its customers.
People strategy
The most evolved commonly found use of metrics among the research participants is where targeted measures are agreed with the business that will enable HR and line
management to monitor execution of the people strategy. The focus of the organisations’ people strategies vary widely, including among others, cost-reduction, organisational efficiency, workforce engagement, driving a performance culture, and building a talent pipeline. The measures are similarly diverse and include: total
remuneration as a % of cost base; payroll costs as a % of sales; staff/manager ratios; % of performance reviews conducted; % of bonus pool paid to top performers; % of business critical roles with ready-now candidates; internal hiring rates; regretted resignation rates; employee survey scores; and many others. In spite of this diversity of focus and measures, all are clear that for their business the measures they selected provide a strong indication of the
The truly strategic position is where
organisations use metrics proactively to inform the creation of the business strategy.
With a few exceptions, examples of which are shown below, the surveyed organisations are not yet using metrics to their full advantage in informing and influencing the development of business strategy.
These are examples of HR taking the initiative in finding data that will enable more informed people related decision-making by the
organisation’s leaders, ahead of those decisions being made.
They use the correlations between the HR metrics and the business performance data to sell a compelling story to the leaders about the benefits of basing their business strategy on what the metrics show.
Once execution of the strategy is underway, new and related data can be monitored to answer the question, “Did it work?”
A financial services company discovered that low employee engagement scores obtained through an employee engagement survey correlated with low sales figures. Using this data they gained senior management support for company-wide strategic initiatives to improve.
A manufacturing company reshaped its location strategy based on an HR-led review of demographic data. They showed the global availability and costs of particular types of skilled labour and matched this to their forecasts of business capability requirements and internal supply data.
Strategic use of metrics is the aspirational destination for all organisations surveyed.
The research shows that HR is on a journey in its use of metrics and that few, if any organisations are sitting on their laurels feeling they have arrived at their destination yet.
To move to the next level from wherever they are, participants recognise the need to:
Increase understanding of metrics and the capabilities within HR to use them
Engage more deeply and strategically with business leaders
Simplify the metrics and the methods of measuring against them as much as possible
Make better use of benchmarking, ensuring it is used judiciously and not as an end in itself
Align performance objectives and rewards with the people strategy and the metrics used
It is worth noting here that the research also shows a correlation between the organisation’s culture of using metrics and the extent to which they are used in HR, suggesting that progress will naturally be easier in some organisations than in others. Organisations that favour numerical analysis will be more inclined to accept HR producing metrics.
There is no one-size-fits-all and powerful metrics must be crafted by each individual organisation.
Once use of metrics moves beyond monitoring the organisational people basics or measuring HR’s performance, and begins to connect with either monitoring or influencing the business strategy, all notions of “standardisation” need to be set aside. By their nature, participants found that strategy-related metrics must be specific, and therefore diverse.
Nevertheless, there are some similarities between the survey organisations in the general principles that have worked best for them:
Focus on a few key measures. Many over-complicated their measures at first, only to find they needed to simplify them later
Choose measures that can be benchmarked as much as possible
Integrate review of HR metrics tightly with normal business performance review processes
Cascade company-wide measures down into business or local scorecards
Pay attention to timing: the business may be more receptive following a key event such as the recession or the appointment of a new CEO
Focus on the business story and the correlations, not the numbers when selling the idea
The more broadly communicated and understood the measures are, the more successful they are likely to be
Balance ideal data with available data, be realistic, and resource the activity
appropriately
Follow hunches and intuition in
experimenting creatively with where the most powerful correlations may come from the simplest measures
The most powerful insights come from combining human capital management data with key business metrics and identifying the differentiating correlations.
Although the metrics used are diverse, the most successful strategy-related measurement experiences discovered through the research share a common design feature. They make clear links between the people metrics and business results that really matter to the leaders of the business.
Participants reported that business leaders pay greater attention when a link can be shown within their own organisation between an HR metric and one or more of their own key performance metrics.
Examples of such links are:
• High employee engagement scores
correlating with customer satisfaction scores in a customer service function
• High leadership scores together with high employee engagement scores leading to high financial performance results
• Payroll costs as a percentage of sales revenues across different business units showing comparative productivity and enabling further analysis of root causes to take action on
The key is to find out what measures the business pays most attention to and stands to
gain the most from improving, and work out what are the people-related levers that might deliver that improvement.
Business acumen, analytical and interpretation skills are core, but so too are relationship building, influencing, intuition, compelling storytelling and timing.
Many HR practitioners do not think of
themselves as “numbers people” and many lack real business acumen and ability to think in business terms. Most participants agree building confidence in data handling and business thinking is essential and should be the first priority in equipping HR to develop their use of metrics.
There is surprising agreement also, however, that these skills alone are not enough. HR must also be able to build strong and influential relationships with the business leaders at all levels; gain themselves the right to a place at the strategic table; tell compelling stories about what is possible if the right people-related levers get attention and improve; and be willing to use initiative and intuition.
A cautionary word was sounded by some that HR should not “throw the baby out with the bathwater” in rushing headlong into a data-driven Brave New World. Many feel that HR often provides the best insights and adds the greatest value through thinking more intuitively about the business than the leaders do. This need not be lost as metrics are increasingly sought and used.
Timing is also seen as relevant to success in getting HR metrics adopted fruitfully in the business. Learning to recognise the trigger events that might create more fertile soil and judging the optimal moment to introduce strategy-forming or strategy-enhancing metrics is seen as another capability requirement.
“Linking every activity to numbers and data is a Holy Grail but “gut-feel” remains a key
ingredient in HR’s contribution to the strategic agenda.”
For powerful use of metrics to exist, a fundamental belief in the value of hard measures in relation to people matters is as essential as the core skills and the systems capability.
All participants report a continuing struggle with accessing the data they would need to take a truly creative approach to using HR metrics and analysing, manipulating and reporting that data alongside data from other functions. Many see investment in systems to improve data handling as a need.
None reported that they are currently undertaking or considering a major HRIT initiative as part of their strategy and metrics drive.
Most strikingly, what determines the extent to which progress is being made in getting the business to define and leverage its strategy through metrics is not the state of the systems, but the state of mind of the HR champions of the cause.
Quite simply, those who believe most strongly in the value HR metrics can add to the business performance are making the most progress, irrespective of how hard they have to work to get the data, or what compromises they have to make against the ideal based on what they can get. The extent to which HR’s mindset is metrics -enabled may be the single most important determinant of how far the potential in this field is achieved.
A metrics-enabled mindset is also underpinned by a belief that HR has a valuable role to play in the business measurement process.
“Measurement is part of the woodwork around here. Our HR information systems are
inadequate, but when we decide we need data we will find a way of getting it.”
Looking to the future Orion’s point of view
So what does it all mean? Orion Partners see 7 key messages for the balanced and successful use of more metrics in HR in the future:
Keep it simple.
Many organisations waste time working on a raft of measures that are not relevant or useful to the business in determining its people strategy or monitoring its delivery. HR should be judicious in selecting a few simple measures that indicate what is most important to know in relation to the people strategy, using data that is fairly easy to get at. Over-complicating, over-reaching and under-delivering are among the most likely pitfalls. Be creatively minimalistic.
Link it to the business and the strategy
from the start.
The more immediately and obviously relevant the measures are to the business and its leaders, the easier they will be to accept. Correlate the HR metrics with the business metrics. Look for future strategic decisions that need to be faced and could be informed by HR data. Metrics for their own sake are a waste of time.
Tell the story.
Having measures in place and regularly presenting a dashboard is not enough. HR needs then to take the combined HR and business measures and articulate the story they tell, in language that the business understands, and in a way that motivates action. It’s not about the process of measuring, it’s about the results that understanding the measurements enables.
Invest in the skills.
Ensuring an effective “in the woodwork” use of metrics requires an investment in building the appropriate skills and behaviours across the HR team. They need to be equipped with business acumen and data handling skills, but beyond this, theirinfluencing, relationship, and storytelling skills are equally important, as is their judgement on timing. This investment is as important as investments in fancy technology or whizzy dashboards, and it probably yields a greater return.
Change the mindset.
Having a metrics-savvy HR team, or even “metrics specialists”, is only the first step. There is also a need to invest in changing line management’s perceptions about whether, and how, important people and organisational matters can be insightfully illuminated by appropriate hard data. There will be sceptics in the business who do not believe “people measurements” count. Deal with them.
Value intuition.
Beware the danger of allowing a ruthless focus on numbers to kill what HR has often been traditionally good at: intuiting the “tone” of the organisation; knowing “how things really are round here”. This is an accomplishment that arises less out of analysis of hard data and more through HR’s intelligent engagement with people issues in its core activities. The paths to finding the right numbers to focus on are not obvious or straightforward. Insights gained through “right-brained thinking” can lead to breakthrough ideas about where the true leverage points exist, and what will really matter to the business next. Do not allow an increased focus on hard data to dull your intuitive skills.
Create a distinctive HR metrics style.
In many ways the metrics journey for HR is mimicking what has traditionally been standard practice for other business leaders: the Head of Sales or the CFO, for example. Using the power of data to engage with theBoard on strategy setting and execution. We believe that HR needs to do this of course, but do so with a distinctive style and approach that melds hard facts with their strength and responsibility for sensing what we call the “pulse” and “glue” of the organisation. Do not succumb to the temptation to borrow financial metrics, such ROI and apply them blindly to HR. Find your own relevant measures that inform the business, and transform the view of HR data as a valid and valuable business management tool.
