Copyright 2007. ICC. All rights reserved. 1 Creating HR Metrics that Matter March 17 th , 2010 Presented By: Cathy Missildine-Martin, SPHR Co-Founder & Sr. VP of Sales & Marketing Intellectual Capital Consulting, Inc. [email protected]
Copyright 2007. ICC. All rights reserved. 1
Creating HR Metrics that Matter
March 17th, 2010
Presented By:
Cathy Missildine-Martin, SPHR
Co-Founder & Sr. VP of Sales & Marketing
Intellectual Capital Consulting, Inc.
Copyright 2007. ICC. All rights reserved. 2
Agenda
• Business Case for HR Metrics
• Process
• Types of Measures
• Business Impact for Each Measure
• Targets and Communications
• Wrap Up/Questions
Copyright 2007. ICC. All rights reserved. 3
Why should HR be concerned about metrics?
Think about your current measures…
Do your metrics matter?
Copyright 2007. ICC. All rights reserved. 5
"Stop asking for a seat in the executive office and instead ask yourself: How can I leverage what I know about Human Resources to help shape and serve the strategy of my organization?”
Sue Meisinger, retiring SHRM President and CEO
HR Magazine, June 2008
Copyright 2007. ICC. All rights reserved. 6
What if you are able to identify you most productive and most engaged employees so that you can develop a strategy for retaining those individuals through the hard times? That's valuable
What if you have redesigned your performance management system and compensation structure so that you are only rewarding those that are performing? (Thus saving compensation dollars) That's valuable
What if you were able to manage talent shortages and surpluses? By understanding business cycles and tending to "talent pipelines" and current talent inventories, HR can act, instead of just react. That’s valuable
This is our time to SHINE…not WHINE!
Copyright 2007. ICC. All rights reserved. 7
Making the Business Case
• Human Capital expense is a company’s greatest expense
• Doing more with less
• Start small (low hanging fruit)
• Better decision making
• Eliminates confusion over what is important (linkage to strategy)
Copyright 2007. ICC. All rights reserved. 8
“After 30 years studying HR Departments, I have found the largest single difference between a great HR department and an average one, is the extensive use of metrics.”
Dr. John Sullivan , HR Metrics the World Class Way
Copyright 2007. ICC. All rights reserved. 9
Why Now?
Copyright 2007. ICC. All rights reserved. 10
Steps in Creating Metrics that Matter
Step 1: Define Business Strategy
Step 2: Determine How to Execute
Step 3: Link HR to Strategy Map
Step 4: Create Measures
Step 5: Link to Strategic Business Results
Step 6: Set TargetsStep 7: Communicate Results
Facilitators
Processes
Products
Technology
Financial
Others
Revenue
Profitability
Market Share
Budget CostSavings
Others
Business ResultsEnablers
Vision and Mission
Copyright 2007. ICC. All rights reserved. 12
Step 1: Define Business Strategy
DashboardMetrics that Matter
contin
uous
monito
ring a
nd fe
edback
contin
uous m
onito
ring a
nd fe
edback
Relationships Linkages
Blueprint for Success
CustomerDrivers
Competing Factors
BusinessStrategy
CustomerDrivers
CustomerDrivers
EmployeeDrivers
OperationsDrivers
FinanceDrivers
“HR Managers must understand the firm’s strategy; that is, its’ plan for developing and sustaining an advantage in the marketplace”
Mark Huselid, Brian Becker, Dave Ulrich, The HR Scorecard
ABC will consistently deliver: products that meet or exceed safety standards; provide outstanding technical
services; and use leading edge technology in the retail/professional market to be recognized as the
number one provider of access controls manufactured in the United States.
Copyright 2007. ICC. All rights reserved. 13
Step 1: Define Business StrategyHow do you do that?
Copyright 2007. ICC. All rights reserved. 14
Steps in Creating Metrics that Matter
Step 1: Define Business Strategy
Step 2: Determine How to Execute
Step 3: Link HR to Strategy Map
Step 4: Create Measures
Step 5: Link to Strategic Business Results
Step 6: Set TargetsStep 7: Communicate Results
Copyright 2007. ICC. All rights reserved. 15
Step 2: Determine How to Execute
IT
Operations
HRSalesMarketing
Engineering
ABC will consistently deliver: products that meet or exceed safety standards; provide outstanding technical services; and use leading edge technology in the retail/professional
market to be recognized as the number one provider of access controls manufactured in the United States.
Why do most strategies fail?
Copyright 2007. ICC. All rights reserved. 16
Step 2: How to ExecuteHow do you do that?
How is our department going to assist in fulfillingour company strategy?
Copyright 2007. ICC. All rights reserved. 17
Steps in Creating Metrics that Matter
Step 1: Define Business Strategy
Step 2: Determine How to Execute
Step 3: Link HR to Strategy Map
Step 4: Create Measures
Step 5: Link to Strategic Business Results
Step 6: Set TargetsStep 7: Communicate Results
Copyright 2007. ICC. All rights reserved. 18
Turnover
Step 3: Link HR to Strategy Map
Man
ag
e
Costs
CU
STO
MER
Focu
s
Reduce certainHR related costs
Effective HR Programs
World Class HR Delivery
Increase customer service skills in
workforce
SuccessionPlanning
HRProcess
Improvement
Create, modelBest practices in HR
Enhance HR StaffKnowledge
& SkillsIn Strategic Areas
Productivity
Retention
Increase employee satisfaction with
HR services
Enhance the value and return
On HR investment
Talent Development
Workplace PlanningImprove
Employee commitment
StrengthenRecruit
& hire of good fit
Strengthen RewardS &
Recognition Program
Enhance diversityAmong workforce
Increase Customer Satisfaction
Increase Customer Retention
HR MISSION: As a Strategic Business Partner, HR contributes to the Company's success by providing innovative HR practices to attract,
retain and engage high performancing, diverse talent.
World Class Talent Development
Copyright 2007. ICC. All rights reserved. 19
Steps in Creating Metrics that Matter
Step 1: Define Business Strategy
Step 2: Determine How to Execute
Step 3: Link HR to Strategy Map
Step 4: Create Measures
Step 5: Link to Strategic Business Results
Step 6: Set TargetsStep 7: Communicate Results
Copyright 2007. ICC. All rights reserved. 20
What Measures are Important?
“The key is to measure both efficiency
(cost and productivity) as well as
effectiveness (quality and value) and
evaluate this mix of metrics in the context of
the drivers of demand for HR’s services.” Richard T. Roth, Atlanta, HR Magazine
Copyright 2007. ICC. All rights reserved. 21
Step 4: Create MeasuresHR Efficiency Measures
• Cost per hire
• HR staff per employee
• Days to hire
• Training cost per employee
• Accidents rates
• Name others:
What is wrong with using JUST efficiency measures?
Copyright 2007. ICC. All rights reserved. 22
Step 4, continued
HR Effectiveness Measures
• Quality of hire
• Employee satisfaction
• Training quality-Kirkpatrick’s four measures
• Number of hours consulting
• % of employees with certain knowledge
• Name others:
What is wrong with using JUST effectiveness measures?
What type a measure is turnover?
Copyright 2007. ICC. All rights reserved. 23
Gap
HR Efficiency Measures
• Turnover by age, tenure, race
• Training level 1 evaluations
• Staffing ratios
HR Effectiveness Measures
• Turnover by performance
• Did behavior change on the job? Results?
• New hire performance at 90 days
Copyright 2007. ICC. All rights reserved. 24
Take it one step further…add turnover metric…for a bigger
financial impact
ButterfliesAdd Turnover %
Change Seekers
Add Turnover %
True LoyalistsAdd Turnover %
Morale Busters
Add Turnover %
High Performance
Low Performance
Engagement
Copyright 2007. ICC. All rights reserved. 25
HR Value Measures
• HR Expense factor=HR expense/total operating expenses
• Total HR Expenses/Total revenues
• Human Capital ROI=rev-operating exp-com/benefits
comp+benefits cost
• Revenue per employee
• Profit per employee
• Compensation budget variance
• Time to efficiency for new managers and employees
Copyright 2007. ICC. All rights reserved. 26
Turnover
Metrics that Matter
FIN
AN
CIA
L
CU
STO
MER
INTER
NA
L
LEA
RN
ING
& G
RO
WTH
Reduce certainHR related costs
HR Programs HR Delivery
Increase customer service skills in
workforce
SuccessionPlanning
HRProcess
Improvement
Create, modelBest practices in HR
Enhance HR StaffKnowledge
& SkillsIn Strategic Areas
Productivity
Retention
Increase employee satisfaction with
HR services
Enhance the value and return
On HR investment
Talent Development
Workplace PlanningImprove
Employee commitment
StrengthenRecruit
& hire of good fit
Strengthen RewardS &
Recognition Program
Enhance diversityAmong workforce
Customer Satisfaction
Customer Retention
HR MISSIONWe provide quality HR services to attract, develop, motivate and retain a diverse workforcewithin a supportive work environment. We do this with an emphasis on customer service
based on consultation and communication
HR VISIONProvide the highest quality support services to make XYZ the company of choice for learning and working.
Customer Sat %
Retention % among protected classes
Performance Rating at 90 days
Cost/hireHR labor/total labor
Revenue Per Employee
Copyright 2007. ICC. All rights reserved. 27
Steps in Creating Metrics that Matter
Step 1: Define Business Strategy
Step 2: Determine How to Execute
Step 3: Link HR to Strategy Map
Step 4: Create Measures
Step 5: Link to Strategic Business Results
Step 6: Set TargetsStep 7: Communicate Results
Copyright 2007. ICC. All rights reserved. 28
Step 5: Link to Strategic Business Results
You must have a clear connection between your metrics and your
business results
• Can your metric pass the following criteria?
– Does it have a direct/indirect impact on revenue?
– Does it have a direct/indirect impact on costs?
– What is the action that you will take based on the result?
Copyright 2007. ICC. All rights reserved. 29
Impact Example-Which ones do C-Suite care about?
Metric Direct Revenue Impact
Indirect Revenue Impact
Direct Cost Impact
Indirect Cost
Impact
Copyright 2007. ICC. All rights reserved. 30
Steps in Creating Metrics that Matter
Step 1: Define Business Strategy
Step 2: Determine How to Execute
Step 3: Link HR to Strategy Map
Step 4: Create Measures
Step 5: Link to Strategic Business Results
Step 6: Set TargetsStep 7: Communicate Results
Copyright 2007. ICC. All rights reserved. 31
Benchmark or not?
Company XYZ HR ScorecardFinancial Employee Sat Training
Current MTD YTD MTD YTD MTD YTDRevenue/emp 1,200.00$ 1,500.00$ 16.50$ Exceeded Expectations 9% 10% Leadership 9% 10%Expense/emp $80.63 $88.31 $89.25 Overall Satisfaction 84% 82% Customer Service 84% 82%Profit/emp $842.00 $871.09 $909.21 Refer a friend 88% 88% Cust Sat Score 88% 88%Variance/Budget -3.9% -4.70% -2.10% Intent to Stay 14 15 Cost/FTE 505.00$ 800.00$ Turnover Company Scorecard
Cuurent MTD YTD vs Bud vs LYOverall Rank
Rank vs LY
HR 10% 12% 18% Revpar 1247.1% 1421.9% (0) 8Hourly 20.0% 24.0% 32.0% Intent to Return- -3.9% 15 21Exec 3% 4% 5% Overall Call Shop -2.4% 800 15Salary 12% 14% 20%
HR
hourly
exec
salary
0102030405060
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Roo
mni
ghts
Day of Month
Current Month Productivity GDS 1-800 # Property Direct
Copyright 2007. ICC. All rights reserved. 33
In our experience, when creating measures that matter, you must ask these important questions:
• Is this company a people oriented or manufacturing business?
• Does the metric have an impact on results?
• Does the metric measure efficiency or effectiveness?
• What are your value metrics?
• What action will you be taking based on that metric?
Copyright 2007. ICC. All rights reserved. 34
Metric Pitfalls to Avoid
1. Collecting too much data so that you cannot focus on the metrics that matter
– Make sure that metrics are tied back to your strategy
2. Relying on poor data
– Make sure data is objective and statistically sound
3. Focusing on metrics that are short term in nature like those preferred by Wall Street
– Use balance scorecard approach so you have a holistic view
Harvard Business School, Michael Sisk
Copyright 2007. ICC. All rights reserved. 35
“Firms that carefully link HR activities to business
strategy, measured by metrics have a 33% higher
return on total capital than organizations
that do not.”
Watson Wyatt Research 2003
Copyright 2007. ICC. All rights reserved. 36
5 Metric Must Haves in a Down Economy
1) Revenue generating employees/# Full time employees-This is a critical metric in this economy. This metric speaks to efficiency especially around organizational design and process.
2) Employee engagement index-This measure is critical to track especially in down times as when times are good, the unengaged will be the first to leave.
3) % of employees with favorable performance rating-This number is critical to know during a downturn as we need to make sure we are keeping the best of the best. After the lowest performing employees are let go, management needs to understand the impact of eliminating top performers.
4) Management/staff ratio-As layoffs continue to occur, you may need to understand what the best management to staff ratio is for your company. (span of control and efficiency)
5) HR Service Delivery rating-How is HR performing with its customer? Is HR delivering the services that its customer values?
Copyright 2007. ICC. All rights reserved. 37
Most Common Metrics High Performing HR Departments…
1) Revenue per employee (to see trends which will lead to asking "what happened there?")
2) Turnover/Retention by department, supervisor, performance, age, etc.
3) Recruiting: Cost per hire
4) Recruiting: Choose appropriate efficiency measure, response time, time to fill,
5) Recruiting: Average new hire performance rating
6) Total HR expense/total revenues
7) Company and departmental level employee engagement scores
8) Compensation budget variance
9) HR service delivery satisfaction rating
10) Training spend per Full time employee
11) Training: Appropriate results based metric after training i.e. customer satisfaction score
12) % of strategic competencies available in organization
Copyright 2007. ICC. All rights reserved. 38
Any Questions?
Copyright 2007. ICC. All rights reserved. 39
If you would like to be on our
”Profitability Through Human Capital” blog list:
http://intellectualcapitalconsulting.blogspot.com/
Email me at [email protected]
Follow me on Twitter: cathymartin
Fan Page on Facebook: Intellectual Capital Consulting