Gone are the days when HR metrics such as time to fill and cost per hire were good enough. As a colleague of mine recently stated, “It would be like the sales team reporting how many calls it makes per month and how many appointments are set.” These metrics just don’t tell the complete story. What a CEO wants to know is what sales were made as a result of those activities and how profitable they were.
Today, these same CEOs are making their decisions based on data, as their tolerance for risk is much lower than it was pre-recession. This demand for data is putting increased pressure on HR departments to provide insight to the C-Suite that is relevant, timely and linked to business outcomes.
Using HR metrics to prove impact and build credibility
In our service-based economy, people-related expenses (investments) can be 60-80 percent of total budgeted expenses. This dollar amount is significant and is also one that HR teams can influence and positively impact. The issue becomes showing the business exactly how HR impacts business outcomes. Traditionally, HR has not been great at proving impact due to the focus on transactional measures that track activities far removed from business results.
HR departments have been talking about being more strategic for decades. Linking HR metrics to business outcomes is an excellent way for HR professionals to build credibility, be recognized as more strategic partner, and rebrand the HR function as a business-focused rather than transactional.
By following the three-step process below, HR professionals will not only have a clear line of sight to their business impact but will also earn a reputation as true strategic business leaders.
1. Start with organizational strategy
It’s difficult to link an HR metric to a business outcome if you don’t understand the organization’s strategy.
If you think about possible business outcomes organizations work towards there are just a few possibilities:
- An increase in revenue
- An increase in profits
- An increase in market share
- Or if non-profit/government — a cost reduction
After the business outcomes are understood, the next step is to understand how the organization plans on accomplishing that outcome. At this point, the strategic plan should answer the question, “What are we, as an organization, going to do to increase our revenue, increase our profits, increase our market share or reduce costs.” The best way to communicate the answer is to visually display or map the strategy.
2. Draw/Create a strategy map
It’s no secret that strategy often fails due to poor execution. If you analyze root cause of this issue, you’ll find that communication of the strategy is a key reason why execution fails. Employees need to understand the “story” behind the strategy.
For example, front-line employees have a difficult time determining what “increasing operating profit” has to do with their job as customer-facing employees. A picture is worth a thousand words, especially when it comes to organizational strategy. Simply put, a strategy map visually depicts the relationship between a business outcome and the actions that lead to that outcome.
Below is a simplified example:
3. Create HR metrics
After the mapping exercise is complete, then and only then are you ready to create metrics. These strategically linked metrics are the ones that the C-Suite will be most interested in viewing. I am not saying to ignore activity-based metrics. These metrics are necessary to keep the trains on the track.
In order to brand HR as strategic, the results-based measures will garner credibility for HR as a function that truly understands the business. So in our example above, you can see where customer satisfaction percentage would be an important metric both pre-reward and post-reward system.
I would also suggest employee engagement scores, revenue per employee and perhaps high-performer retention rate. These metrics are not the only ones, but the point is to make sure they’re linked to the business outcome of increased revenue.
As HR continues to step up its game post-recession, metrics become a strategic weapon in the journey for HR professionals to become businesspeople who also understand the people part of the business.