CHAPTER 30

HR Metrics

CHAPTER OBJECTIVES

After reading this chapter, you should be able to:

1. Understand the meaning of HR metrics
2. Define the objectives of HR metrics
3. Elucidate the steps to HR metrics
4. List the levels and types of HR metrics
5. Understand the formula for important HR metrics
6. Enumerate the benefits of using HR metrics
7. Describe the meaning of HR dash board and HR analytic
8. Explain the meaning and types of benchmarking
9. Understand the essence and essential steps in HR scorecards
10. List the prerequisites for success of HR metrics

Google is one of the youngest but most valuable companies in the world today. In fact, it has now become the third most valuable firm in the world. Google’s market success is generally attributed to its successful people management practices that result from its use of “people analytics”. The firm adopts data- and analytical-based model for performing people management functions. In Google, people management decisions are guided by its “people analytics team”. The primary objective of this team is to substitute data and metrics for the use of opinions. The people analytics team works directly under the Vice-President, and it also has a representative in every major human resource (HR) function. It organizes transparent employee surveys and dashboards. This team uses its powerful data to influence the managers to act on the team’s recommendations. This company has “PiLab”—a unique subgroup that conducts applied experiments to decide the best approaches for managing people and maintaining a productive environment. It also uses a “retention algorithm” to accurately predict which employees could become retention problems in the near future. Furthermore, it developed an algorithm for predicting which candidates have the highest chances of succeeding after they are recruited. Finally, the unique “project oxygen”—a multiyear research project achieved statistically significant improvements in managerial effectiveness and performance.

The importance of HR metrics is explained by an example. This chapter discusses various aspects of HR metrics and its associated terms.

Introduction

— Peter Drucker

In today’s complex business environment, managers are required to make sound business decisions with confidence. In order to make such informed business decisions, they need the right and precise data. The metrics are capable of helping the managers with such data. A metric is simply a way to measure and track key performance indicators. It is developed using quantity, quality, costs, on-time performance, and other selected goals. For instance, students’ performance in a standard test is the key metric in education. HR metrics are just a measurement of any function connected with HRM. The number of days of sick leave availed by the employees over a period of time is an example of HR metrics. As far as HRM is concerned, there is a general complaint that many HRM systems and practices are not subjected to systematic measurements. Moreover, the organizations do not assess the short- or long-term impact of their HRM activities on organizational performance. Of late, HR metrics are being used to assess the HR practices and results within the firm over a period of time.¹

HR metric is the future of HRM as it helps the management in accurately measuring the efficiency of HR activities performed. According to Baron and Armstrong, the future of human capital management depends on the extent to which it can provide the basis for achieving added value through people.² HR metrics can be used to track both HR efficiency and HR effectiveness. It enables the top management to measure the performance of the firm’s investment in recruitment, training, and employee engagement initiatives. It helps the HR people in identifying where the firm’s resources can best be allocated to accomplish organizational goals. Thereby, it allows the organization to get maximum return from its investment in human capital. It also helps the management in determining its HRM priorities to ultimately improve the organizational productivity.

A wide range of HR metrics are available for measuring various HR functions like recruitment, compensation, benefits, employee engagement, retention, and training. It is, therefore, necessary for HR managers to carefully consider the organization’s goals, strategy, and data requirements while choosing the HR metrics. In specific terms, managers should consider (1) what metrics are important for the firm, (2) what data are needed to compute these metrics, (3) how to collect, assemble, and analyse these data, (4) what benchmarks are needed for evaluation, and (5) how to use these metrics for organizational planning and implementation, problem solving, etc.

Definition of HR Metrics

Measurement of efficiency and effectiveness of HR practices is the essence of many definitions of HR metrics. Box 30.1 shows a few important definitions.

Objectives of HR Metrics

The primary objective of HR metrics is to convert HR department into a valuable strategic partner in running the business. It also strives to help the HR managers in convincing the senior management about HR needs, issues, and ideas with actionable data. In specific terms, the objectives of HR metrics are as follows:

1. To measure the key performance indicators that support the mission, goals, and objectives of an organization. In other words, to quantify the cost and impact of HR activities and programmes in definite terms and to demonstrate the value added to the organization.
2. To identify the strengths and weaknesses of the HR department and also the areas of deficiency where more HR attention is required.
3. To develop a standard of measurements that can be used for evaluating and comparing HR results or outcomes over a period of time.
4. To prioritize opportunities for the improvement of HR functions as a part of continuous improvement process.

It is essential to ensure that the metrics provide relevant, useful, and reliable data to the managers to make fact-based decisions. In case of labour turnover in a firm, a good metric will provide data not only about how many persons left the organizations but also a break up of voluntary and involuntary exits.⁷

Steps to Set up HR Metrics

Measuring HR effectiveness is very important but selecting the relevant measures and metrics is a complex task. Even though the managers can develop their own steps to set up the HR metrics, the following steps (Figure 30.1) can be used by any organization with due modification.

Step 1: Establish a Well-defined Business Strategy

The first prerequisite for the introduction of HR metrics is the establishment of a well-defined business strategy. Such strategy must be clear, concise, and free of ambiguities. Until a firm clarifies its business strategy accurately, it will be impossible to measure how successful the organization is. An organization can have increase in revenue, increase in profit, increase in market share, or cost reduction as its business strategy. A business strategy of the firm is usually the standard for measuring its business success. It also enables the employees to know what is expected of them. It also increases the focus of the organization on strategy and results.

Step 2: Develop a Business Case for HR as a Strategic Asset

After defining the business strategy, the HR people should now present a clear, compelling, and sound business case, that is, why and how HR can support the business strategy. The business case is usually related to the HR’s contribution to the effective implementation of the firm’s strategy. In this regard, HR can contribute to the operational efficiency through the following: (1) creating value with good HR alignment and (2) controlling costs. The HR professional must build a compelling business case that gains traction and support from key internal customers.⁸The business case can be considered effective only if it forcefully explains to the management how HR can support the strategy execution. Until HR justifiably proves how it contributes to the financial success of the business, HR activities will always be viewed more as a cost centre than as a strategic resource.

Step 3: Build a Strategy Map

A picture is worth a thousand words. A strategy map visually depicts the relationship between the business strategy and the actions required to accomplish that strategy. In other words, the strategy map explains which organizational processes and capabilities drive organizational performance. An effective strategy map provides a roadmap to create value through the organization’s workforce (Figure 30.2). Typically, a strategy map of valuation creation process involves predictions or hypotheses regarding which organizational processes drive the business performance.

The strategy map usually covers the following broad range of issues:

1. Which skills and competencies are essential for attaining future goals and objectives?
2. How to obtain necessary talent?
3. What are the hurdles that can block the achievement of each goal?
4. How should employees behave to ensure that the organization achieves each of these goals?
5. How to develop a high-performance culture?

Answering these questions will clarify what contribution HR can make to the organization’s business.

Step 4: Determine HR Deliverables within the Strategy Map

Converting HR strategies and initiatives into tangible business value requires selection of appropriate HR delivery approach.⁹ HR delivery refers to the strategic contribution of HR to the achievement of organizational goals. Promotion and better pay are a few examples of HR deliverables, which may result in employee stability and productivity. HR system, process, and infrastructure are the key HR delivery enablers in the business. It is the responsibility of HR people to identify both the HR performance drivers and the HR deliverables on the strategy map. To link HR deliverables and the strategy map, firms normally use analytical methods such as cost–benefit analysis to measure the short- and long-term pay-offs.

A cost–benefit analysis is a useful technique as the costs of the HR deliverables are weighed against the benefits generated for the firm. It involves the following three-step process:

1. Identification of all potential costs
2. Identification of the likely benefits
3. Calculation of the return on investment (ROI) of the programme

The HR delivery model so developed must have the ability to effectively meet the organization’s needs and objectives.

Step 5: Create Alignment between the HR Architecture and HR Deliverables

Alignment between the HR architecture and HR deliverables in a way refers to the alignment between the HR system and the organization’s strategy implementation system. The term HR architecture refers to the systems, practices, competencies, and employee performance behaviour that reflect the development of the organization’s strategic human resources.¹⁰ An organization’s HR architecture includes the following three components:

1. HR function such as recruiting, training, compensation, and benefits
2. HR management system that attempts to maximize the overall quality of the organization’s HR
3. Strategic employee behaviour which involves employees’ actions that result in the implementation of the organization’s strategy

If there is no alignment between the HR architecture and HR deliverables, then the HR strategy will not only fail to create value but also destroy the existing value. Organizations should create both internal alignment and external alignment between the HR architecture and the HR deliverables. We shall now briefly discuss about these alignments.

1. Internal alignment between the HR architecture and HR deliverables: Internal alignment is measured by evaluating the feedback from line managers and employees who interact with the HR system on a daily basis. If high degree of fit and consistency in alignment is perceived by these managers and employees, then it indicates a strong correlation between the HR architecture and its deliverables. In contrast, misalignment means the HR system is giving conflicting signals about what the organization values are.
2. External alignment between the HR architecture and HR deliverables: External alignment is normally evaluated through appropriate tests. The HR deliverables are first assessed to identify how closely they match the strategy map. After that, the HR system is tested to find out exactly what HR deliverables are being generated. The test results will indicate whether the HR deliverables really act as the key performance drivers for the firm’s strategy.

Step 6: Design the Strategic HR Measurement System

HR strategic measurement system should be designed in such a way that it (i) measures the right HR performance drivers and enablers, (ii) chooses the right and valid measures for each deliverable, and (iii) measures those deliverables accurately. A sophisticated and elaborate measurement system provides many potential benefits to the organization.

Step 7: Implementation

To be effective, HR metrics must become a regular feature of the organization. A well- constructed HR metric allows HR managers to monitor HR performance on a continuous basis. It also allows the HR managers to make periodic adjustments to ensure that the HR architecture remains aligned with the business strategy of the organization.

Levels of Metrics

HR metrics are specific measures related to the performance indicators. But deciding what to measure is very important. An effective HR metric should not only report the results but also show a cause and effect relationship. As such, the HR metrics serve multiple purposes such as knowing the (1) happenings within an organization, (2) effects of changes implemented, and (3) value being added to the firm through its people. HR metrics are usually collected at number of levels. The different levels are as follows:

1. Individual-level metrics (“within person” and “between persons” metrics)
2. Group-level metrics (between group’s metrics)
3. Department-level metrics (between department’s metrics)
4. Organization-level metrics (between organization’s metrics)

When the organization decides to collect HR metrics at multilevel, it is important to undertake vertical and horizontal gap analysis. A gap analysis helps the management in understanding what actually happens in the firm and what should happen for goal fulfilment. Here, the purpose of gap analysis is to make sure that HR activities at each level are consistent and contribute towards the accomplishment of organizational goals. A vertical gap analysis examines the alignment among HR activities, whereas a horizontal gap analysis examines the alignment between HR activities.¹¹

Types of HR Metrics

Broadly, metrics can be classified into three kinds based on its purposes. The first kind of metrics focuses on the measurement of the efficiency of the HR function. Specifically speaking, it will indicate how well the HR function does its basic administrative tasks in particular. These metrics assess HR efficiency that may include productivity and cost of the HR function. The time to hire, administrative cost per employee, and HR headcount ratios are examples of this kind of metrics.

The second kind of HR metrics focuses on effectiveness. Effectiveness refers to the degree to which HR programmes and practices have the desired impact on the workforce.Measurement of the strategic skills and core competences of the work force is the primary aim of these metrics. These metrics also categorize how well key jobs are filled and the type of training activities undertaken for the workforce. In the case of training and development, a real and effective metrics will offer information not only on whether employees develop the required skills but also about their satisfaction with the training provided.

The third and final kind of metrics focuses on optimizing the capabilities and the core competencies of the firm. This metric can be gathered to measure the impact of HR programmes and practices on business performance.¹² This metric shows the impact of improvement in the quality of workforce and innovative HR practices on the performance of business processes (e.g., improved productivity, reduced defects, and increase in rate of innovations).

The important challenge before HR professional is in determining which HR metrics are useful for assessing the past experience and also the future project needs. In this regard, HR people should depend on their work experience and knowledge on HR metrics for choosing the appropriate HR metrics. A common classification of HR metrics is given in Figure 30.3.

We shall now discuss them briefly.

Business Impact Metrics

The primary purpose of these metrics is to explain how a specific HR programme or activity adds value to the bottom line, namely company’s net earnings/incomes. Two important business impact metrics are return on investment (ROI) and cost and benefit analysis.We shall now discuss them briefly.

1. Return on Investment: ROI is a widely used financial measure to calculate the cost and contribution of HR activities. It answers questions like did organization get adequate return on its investment in human capital? A firm’s investment in human resource is usually the largest investment. It is, therefore, essential for the HR managers to determine how these human resources can be allocated in best way to achieve organizational goals. It also helps the managers to decide how and when to hire, develop, and retain people to achieve competitive advantage in the business. Return on investment typically includes the hard cost of HR. The examples of hard cost of HR in employee turnover are (1) recruitment and selection costs involving the advertisement of the vacancy, reviewing applications, and conducting interviews and (2) cost of induction and training.
2. Cost and Benefit analysis: It involves the comparison of costs and benefits associated with the proposed HR programme or activity. This analysis can be used to evaluate the cost effectiveness of several alternatives and then choosing a best alternative for implementation. Box 30.2 outlines the competitive advantage of HR metrics. The cost–benefit analysis involves the following three stages:

1. Determining the cost of the HR activity like employee training
2. Identifying and computing benefits (e.g., potential savings through training like increased employee performance, improved employee retention, and fewer work errors.)
3. Conducting cost and benefit comparison (computing the cost per trainee, savings per trainee, and the relationship between cost and business performance)

Cost–benefit analysis normally includes soft costs of employee turnover such as work disturbance, lost expertise, missed deadlines, and reduced employee productivity and morale.¹³

Tactical Accountability Metrics

It aims at providing necessary information for measuring the effectiveness of specific HR activity. The primary goal of the tactical accountability metrics is to help organization understand how effectively the HR programmes for talent induction, development, and maintenance are carried out. The examples of these metrics are the quality of recruitment, timing of recruitment, cost of recruitment, job satisfaction, training cost of employee, frequency of absenteeism, turnover and retention, grievance rate, and attrition rate.

HR metrics can also be classified into hard HR metric and soft HR metric based on the nature and verifiability of data. We shall now discuss them briefly.

Hard HR Metrics

HR measurements that rely on verifiable data are called hard HR metrics. These metrics are objective in nature as they use quantitative data to measure the work routinely carried out in the organization. It is also used to know how effectively employees perform their works. Hard HR metrics are usually associated with tangible assets of the organization. HR people depend on sources such as employee records, management reports, and project databases to get necessary data for hard HR metrics. It is easy to measure and quantify the hard HR data. Similarly, it is relatively easier to convert them into monetary values. These HR metrics enjoy better credibility with the management.

The important examples of hard HR metrics are employee turnover, headcount, performance appraisals, total employees trained and training hours, training cost per employee, total missed days of work, total number of applications processed, and time needed to fill the vacancies. The broad basis of hard HR metrics is output, quality, cost, and time.

Soft HR Metrics

HR measurements that rely on qualitative data are called soft HR metrics. These metrics depend on subjective data and interactive responses to measure an employee’s effectiveness. Soft HR metrics are typically associated with the intangible assets of the firm. It is generally difficult to collect, measure, and quantify the soft data. It is also difficult to fix monetary values for the soft HR metrics.

Managers depend on customer surveys, management reports, and face-to-face interviews to get necessary data for soft metrics. The important examples of soft HR metrics are work climate, employee satisfaction, engagement, diversity, and employee development. Specifically speaking, employee satisfaction, time, and cost saving from HR process re-engineering, and workplace diversity are a few examples of soft HR metrics.

Finally, HR metrics can also be classified as single-programme metrics and index metrics depending on the number of HR programmes measured.

Single-programme Metrics

It refers to the measurement of efficiency or output of just one programme or process. Examples of single-programme metric are return on HR investment, time to fill key jobs, turnover rate of employees in production department, the performance of new entrants, and workforce diversity ratios.

Index Metrics

It refers to the combination of many individual programme measures into a single index. This kind of metric is useful when the performance of two different and unique departments is to be compared. In such cases, an index form of metric is the best possible approach. Examples of index HR metrics are employee engagement index, employee retention index, manager quality index, market opportunity index, compensation satisfaction index, and employee commitment index.

Finally, metrics can also be classified as impact metrics, effectiveness metrics, satisfaction metrics, volume metrics, and cost metrics. They serve different purposes. We shall now discuss them briefly.

1. Impact metric measures the impact of HR activities on business performance/goal accomplishments like ROI on training.
2. Effectiveness metric measures productivity/performance of the workforce such as productivity per employee.
3. Satisfaction metric measures satisfaction of managers/workforce with regard to HR activities such as compensation and benefits.
4. Volume metric measures frequency of HR activities such as employee attendance, absenteeism rate, and employee turnover.
5. Cost metric measures the cost of HR activities such as cost of turnover and aggregate training cost.

Formula for Important HR Metrics

The important HR metrics and their corresponding formula are discussed in Table 30.1.

 

Benefits of HR Metrics

HR metrics facilitate better management of human and physical resources. It enables the managers to prioritize the activities that produce optimum business impact. The specific benefits of HR metrics are described as follows:

1. Facilitates the determination of high priority areas: HR metrics provide clarity about priority issues that affect organizational performance. It enables the managers to understand the high-priority HR functions of the organizations. Furthermore, it recognizes key organization impact areas for HR executives and line managers to focus upon. It also helps the top management in determining the budget allocations and employee incentive schemes.
2. Achieving desired employee behaviour: Metrics can bring about desired behaviour among employees if communicated throughout the organization. Through metrics and rewards, management can send a message about how it expects the employees to behave in certain situations.¹⁴ However, metrics will not generate any return on investment unless managers first change their behaviour decisions.
3. Getting competitive advantage: HR metric is capable of transforming the HR department into a competitive advantage for the organizations. Metrics enable the managers to adopt measures necessary to maximize return on the skills and abilities of their people. Through HR metrics, HR departments can increase its operational efficiency leading to the effective fulfilment of strategic goals of the firm.
4. Ensuring continuous improvements: A well-designed and properly executed HR metrics can help the organizations to achieve continuous improvements in productivity, efficiency, capability, satisfaction, innovation, and engagement. The continuous improvements are achieved by leveraging the workforce through the metrics.
5. Proof of efficiency: The HR metrics provide a quantifiable measure of HR activities in the organization. Metrics are capable of providing HR department with clear evidence of the strategic impact of its HR activities. It enables those working in HR department to demonstrate the efficacy of HR initiatives in supporting the delivery of the organization’s strategic goals.
6. Cost justification of HR investments: In today’s cost-conscious business environment, HR needs to justify its initiatives by making a business case. Through quantitative measure and data, HR metrics provide cost justification for investment in new HR systems. In this way, it enables the HR people to address the management’s concerns on issues such as return on HR investment.
7. Preparing proactive plans: HR metrics help the organizations in developing proactive plans to meet the future developments confidently. It enables the management to see the organizational priorities within a wider picture in order to manage the future with more awareness. It actually develops sustainable measurement practices that are appropriate for utilizing economic circumstances and organizational growth situations.

HR Dashboard

Large companies generally use HR dashboards to graphically display the HR statistics to the managers. A HR dashboard is actually a software that helps in data visualization. It graphically shows the HR data that in turn help employees make more informed decision by understanding the big picture all in one place.¹⁵ Thereby, this dashboard software provides the HR departments with real-time visibility into their data and better insight into their key performance indicators (KPIs). A typical dashboard brings several KPIs together and therefore makes it easier for people to identify the trends in information.

HR Analytic

HR analytic may be defined as evidence-based approach for making HR decisions on the basis of quantitative tools and models.¹⁶ Analytic is actually a method to report sophisticated predictive modelling technique designed to answer “what If” questions regarding HR variables.¹⁷ There is a basic difference between HR metrics and HR analytics. Metrics are just numbers or data that reflect some descriptive detail about HR processes or outcomes. In contrast, analytics are strategies for combining data elements into metrics and for examining relationships or changes in metrics. However, HR analytic has not evolved into a full-fledged reporting system as there is no universal standard available for the implementation and reporting of relevant HR measures. Similarly, there is no consistency in HR reporting, which makes it difficult to be evaluated and then compared with HR practices of other organizations. Recently, many organizations are showing better interest in human capital metrics and analytics that resulted in organizations reporting a larger number of metrics.

Benchmarking

In simple terms, benchmarking refers to the process of setting standards with reference to various industries or sectoral norms.¹⁸ Benchmarking may also be defined as a comparison with selected performance indicators from different organizations that are considered to be “best in class”.¹⁹ Benchmarking is an important aspect of measuring the effectiveness of HR practices. It enables the organizations to assess its HR practices against HR practices of the industry, especially the key competitors. Besides, it helps the management in measuring its HR practices against predetermined internal standards. Generally, HR benchmarking is classified into three categories: internal benchmarking, competitive benchmarking, and generic benchmarking, which are briefly discussed as follows:

1. Internal benchmarking refers to the comparison of HR practices of one department or unit with another department or unit of the same organization. For instance, the safety practices of a Gujarat unit may be compared with Karnataka unit of a business organization.
2. Competitive benchmarking refers to the comparison of HR practices of a firm against the competing firms of the same industry. For example, if Infosys compares its attrition rate with TCS or WIPRO, it may be called competitive benchmarking.
3. Generic benchmarking refers to the comparison of same or similar HR practices and process with other firms regardless of industry or region. For instance, FMCG business-based Hindustan Uniliver limited could compare some of its HR practices with a software company like Cognizant Technologies.

Steps in Benchmarking Process

The important steps involved in benchmarking process are as follows:

1. The firm should first understand its own HR performance by assessing it through appropriate HR-related measures.
2. The firm should then decide in definite terms what to benchmark. While choosing the benchmarks, care should be taken to ensure that selected measures are obtainable within industry or comparable firms.
3. In the next step, the firm should allocate adequate resources and decide the exact completion date for the implementation of the programme.
4. Firm must now identify the firms with which comparison can be made on benchmarked HR practices. Once the comparable firms are identified, it should collect necessary data pertaining to the benchmarked HR practices of these firms in detail.
5. In the last stage, the collected data are analysed with the specific purpose of identifying the gaps in the HR practices between the firms. Afterwards, necessary actions are taken up to close the gaps in the HR performances.

HR Scorecard

Based on Kaplan and Norton’s balanced scorecard,²⁰ which is used to report on diverse performance measures, HR scorecards were developed. An HR scorecard is a visual representation of key measures of HR achievements, productivity, and other factors important to the organization. HR scorecards are used to measure the efficiency and effectiveness of HR functions in developing desired employee behaviour. Since HR scorecards are tied to corporate goals or strategic plans, it enables the management to make targeted investments in HR and organizational structures.

The three-dimension involved in the HR scorecard system are (1) it shows the metrics used for measuring HR activities such as training, performance management, compensation, and safety (e.g., increased financial incentive to employees), (2) it measures the employee behaviour resulting from such HR activities (e.g., improved employee involvement and productivity), and (3) finally, it measures the outcome of resultant employee behaviour (e.g., increased productivity, performance, and profit).

The essential steps involved in the development of HR scorecards are as follows:²¹

1. Defining the business strategy clearly
2. Identifying the important and relevant outcome measures
3. Converting these measures into definite actions and accountabilities
4. Communicating to the employees the detailed description of what is expected of them
5. Installing supportive HR management and measurement systems
6. Stating the roles of leadership, employees, and HR people in unambiguous terms

According to Becker and others,²² the key elements of successful HR scorecard are as follows:

1. The workforce success in accomplishing the key strategic objectives of the business
2. The right HR cost
3. The right types of HR alignment
4. The right HR practices
5. The right HR professionals

The success in the implementation of HR scorecard is affected by three challenges, namely perspective, metric, and execution challenges. These are briefly explained as follows:

1. Perspective challenges pertain to the level of understanding of the top management about how workforce behaviours affect strategy execution.
2. Metric challenges relate to the questions whether the organization has identified and collected the accurate measures of success.
3. Execution challenges pertain to the question whether the managers have (i) access to the necessary data and (ii) ability and motivation to employ the HR metrics for decision making.²³

Prerequisites for Success of HR Metrics

The success of planning and execution of HR metrics depends on the existence of certain vital factors in the organization. These are as follows:²⁴

1. Developing and using metrics that reflect the company culture
2. The presence of simple, meaningful, and pertinent HR metrics
3. Keeping manageable and justifiable number of metrics. The presence of too many HR metrics may lead to overlapping, contradiction, and confusion.
4. Ensuring the strategic support, approval, and cooperation of top management for using metrics
5. Availability of necessary supporting infrastructure
6. Availability of adequate and up-to-date skills among HR people relating to HR metrics
7. Ensuring accountability for each of the metrics
8. Sharing the results of metrics with people in need of information
9. Developing strategies for attracting, nurturing, and incentivising excellence among managers and employees based on the results of measurements
10. Developing trend lines for comparison with other units, departments, and organizations.

Summary

1. HR metrics are just a measurement of any function connected with HRM. Measurement of efficiency and effectiveness of HR practices is the essence of HR metrics.
2. Objectives of HR metrics are (1) to measure the key performance indicators, (2) to identify the strengths and weaknesses of the HR department, (3) to develop a standard of measurements, and (4) to prioritize opportunities for improvement in HR functions.
3. The steps in HR metric process are (1) establishing a well-defined business strategy, (2) developing a business case for HR as a strategic asset, (3) building a strategy map, (4) determining HR deliverables within the strategy map, (5) creating alignment between the HR architecture and HR deliverables, (6) designing the strategic HR measurement system, and (7) implementation.
4. Levels of HR metric are (1) individual-level metrics, (2) group-level metrics, (3) department-level metrics, and (4) organization-level metrics.
5. Classification of HR metrics: (1) business impact measures and (2) tactical accountability measures. Two important business impact metrics are (a) return on investment and (b) cost and benefit analysis. It can also be divided into hard HR metric and soft HR metric. Finally, HR metrics can also be classified as single-programme metrics and index metrics.
6. Benefits of using HR metrics (1) facilitate the determination of high-priority areas, (2) achieve desired employee behaviour, (3) getting competitive advantage, (4) ensure continuous improvements, (5) proof of efficiency, (6) cost justification of HR investments, and (7) prepare proactive plans.
7. HR dashboard is a software that helps in data visualization. This dashboard software provides human resource departments with real-time visibility into their data and better insight into their key performance indicators (KPIs).
8. HR analytic may be defined as evidence-based approach for making HR decisions on the basis of quantitative tools and models.
9. Benchmarking refers to the process of setting standards with reference to various industries or sectoral norms. Generally, HR benchmarking is classified into three categories: internal benchmarking, competitive benchmarking, and generic benchmarking.
10. An HR scorecard is a visual representation of key measures of HR achievements, productivity, and other factors important to the organization.

Review Questions

Essay-type questions

1. Explain the objectives of HR metrics with example.
2. Describe the steps in HR metrics process with suitable example.
3. Critically examine the various types of HR metrics.
4. Enumerate the various formula for computing the retirement and training effectiveness.
5. Discuss in detail the benefits of HR metrics.
6. Give a brief note on (a) HR dashboard and (b) HR analytic.
7. Examine the meaning, characteristics, and steps in benchmarking.
8. How will you develop a HR scorecard for a manufacturing organization?
9. List the essential prerequisites for the success of HR metrics.

Skill-development Exercise

Objective – The objective of this exercise is to show how to identify the HR functions for which HR metrics are required and prepare such metrics.

Procedure – The class is split into groups. Each group has (1) a HR manager, (2) two HR team members, (3) a HR metric consultant, and (4) two observers of the meetings. The role of the observers is to observe and provide feedback on different aspects of the role playing sessions.

Situation

JM Industries is an automobile company engaged in the production of a wide range of tyres. It specializes in two wheeler tyres, four wheeler tyres, and UTV tyres. This company is recognized for its drive towards continuous quality improvement and customer satisfaction. Recently, an independent director of this company suggested the HR department to introduce HR metrics to uncover the strengths and weaknesses of its HR functions. According to this director, these metrics also allow the HR people to understand which areas one needs to focus on and which ones to be capitalized. However, many HR executives viewed the HR metric as a complex, time-consuming, and costly exercise. The top management wanted the HR department to at least try to set up a few HR metrics because the major rival businesses have already initiated the process of introducing HR metrics in large way. It has formed a committee to identify the HR functions that require measurements and also the nature of metrics.

Steps in the exercise

Step 1: The HR manager consults the HR metric consultant to know about HR metrics and gather information about nature of metrics suitable for the company.

Step 2: The HR manager conducts meeting with the HR team members to identify the most helpful HR metrics and also their utility value to the company.

Step 3: The observers analyse the discussion and provide their feedback on the performance of all the members in their role playing sessions.

Case Study

Is Metrics Panacea for all HR Problems in Century Software?

Century Software is one of the leading technology-based companies engaged in management consulting, technology development, and outsourcing services. This company is well known for its innovative approach towards delivering business value and its commitment to sustainability. It aims at optimized utilization of natural resources, capital, and talent. It is engaged in activities like Big Data Analytics, Operational Analytics, and Supply Chain Analytics. It has 1,25,000 employees on its roll and offices in 110 cities around the world. The net revenue of this company is Rs. 13.0 billion for fiscal year 2014. In Century Software, people management cost constitutes nearly 59% of total expenses.

The HR department of this company is headed by Mr Easwaren, one of the senior leaders in the company. However, in recent times, the CEO of the company Mr Mahendra Singh has lot of worries about the functional efficiency of HR department especially in the context of serious erosion of manpower in Big Data Analytics—one of the core departments. The high attrition rate in this department has caused consternation among the top managers. The CEO and his team is wholly aware of the fact that the HR department has taken the issue seriously and conducting exit interviews to understand the cause or raisons d’être. They also regularly collect information on absenteeism and turnover. However, the irony is that the top management is not informed of outcome of such exercise in desirable and actionable form for initiating necessary action. The absence of actionable report about the HR problems of Big Data Analytics department kept the top management always in tenterhooks. This is because the good and consistent performance of this department is essential for the execution of the strategic and operational plan of the whole organization. Of late, the top managers began to believe that HR is not supporting the strategic agenda of the company. They are now toying with the idea of changing the leadership in the HR division and also effecting radical changes in the structure of the HR department.

Questions for discussions

1. Do you agree with the opinion of the top management that HR department is not effective in handling the attrition and absenteeism problems of Big Data Analytics department?
2. According to you, what needs to be done by the HR department from HR metric perspective to tackle the situation?
3. If you were to be a HR consultant, what will be your specific suggestions and strategy to improve the efficacy of HR department

Notes

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4. Dessler and Varkkey, Human Resource Management, 11^th ed. (New Delhi: Pearson Education, 2009), p. 15.
5. Robert L. Mathis, John Jackson and Sean Valentine, Human Resource Management: Essential Perspectives, (Boston, MA: Cengage Learning, 2012), p. 20.
6. William J. Rothwell, Jed Lindholm, Karen K. Yarrish and Aileen Zaballero (ed), Encyclopedia of Human Resource Management, Human Resources and Employment Forms, (San Francisco, CA: John Wiley & Sons inc, 2012), p. 338.
7. Margaret A. Carter-Ward, Top Ten Best Practices in HR Management for 2009, Special Report, (Old Saybrook, CT: Business & Legal Report Inc, 2009), p. 44.
8. Stephen Moore, Uncovering Hidden Workforce Potential with HR Metrics, http://bizresource.com.au/resources/BUS/Payroll%20-%20General/Employment%20Law%20and%20Human%20Resources/Uncover%20Hidden%20Workforce%20Potential%20with%20HR%20Metrics.pdf.
9. http://www2.deloitte.com/content/dam/Deloitte/de/Documents/human-capital/creating-value-through-hr.pdf p. 5.
10. Adrian Wilkinson, Nicolas Bacon, Tom Redman and Scott Snell (ed), The SAGE Handbook of Human Resource Management, (London, UK: Sage Publication, 2009), p. 352.
11. Charmine E. J. Härtel and Yuka Fujimoto, Human Resource Management, (NSW, Australia: Pearson Education, 2015), p. 338.
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13. Adriana Costello, The True Cost of Employee Turnover, HR.com, http://www.hr.com/en/app/blog/2012/03/the-true-cost-of-employee-turnover_h0drvdzp.html.
14. John Sullivan, Rethinking Strategic HR: HR’s Role in Building a Performance Culture, (Chicago, IL: CCH, 2004), pp. 200–202.
15. Tracey Smith, HR Analytics: The What, Why and How, (Charlotte, NC: Numerical Insights LLC, 2013), p. 14.
16. Lauric Bassie, ‘Raging Debates in HR Analytics’, People and Strategy’ (2011), 34, 14–18.
17. Allison Rossett, Metrics Matters, T&D, (2010), 64, 65–69.
18. Edward B. Harvey, John Hale Blakely, CCH Canadian Limited and Katherine A Lee, Internet Solutions for HR Managers, (Canada: CCH Canadian Limited, 2002), p. 9.
19. Jean Hiltrop and Charles Despres, ‘Benchmarking the Performance of Human Resource Management’, Long Range Planning, 27(6), 4, (1994): p. 47.
20. R. S. Kaplan and D. P. Norton, The Balanced Scorecard Measures that Drive Performance, Harvard Business Review (1992, Vol No: 1): 71–79.
21. M. A. Huselid, B. E. Becker and R. W. Beatty, The Workforce Scorecard: Managing Human Capital to Execute Strategy (Boston: Harvard Business School Press, 2005).
22. B. E. Becker, M. A. Huselid and D. Ulrich, The HR Scorecard: Linking People, Strategy and Performance, (Boston, MA: Harvard Business School press, 2001).
23. M. A. Huselid, B. E. Becker and R. W. Beatty, The Workforce Scorecard: Managing Human Capital to Execute Strategy, (Boston: Harvard Business School Press, 2005).
24. Ian Hunter, Jane Saunders, Allan Boroughs and Simon Constance, HR Business Partners (Hants, England: Gower publishing Limited, 2006).