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

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HR by the Numbers: Use HR

Metrics to Measure and

Maximize Your Workforce's

Strategic Value

Thursday, August 22, 2013

1:30 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

Presented by:

Ronald Adler

Laurdan Associates, Inc.

Jennifer Burdick

CMK Associates, LLC

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 emailed to the registered participant at the completion of the conference. For more

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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

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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

.”

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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.”

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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

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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

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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?

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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

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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?

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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?

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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?

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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.

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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

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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

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HR Metrics:

What Do Users Want?

External Organization Benchmarks: -- Professional standards http://www.shrm.org/hrstandards/Pages/default.aspx -- Industry standards -- Baldridge -- SA8000 -- ISO 31000

-- “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.

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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

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HR Metrics: Risks

1) May p

ut 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

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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

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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?

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Questions?

Ronald Adler, M.B.A., President-CEO Laurdan Associates, Inc.

301.762.5794 radler@laurdan.com Jennifer Burdick, President

CMK Associates LLC 410.467.5462

jennifer.burdick@verizon.net

Disclaimers

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*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

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