Measuring HR Effectiveness

Employers today expect their human resource managers to build a persuasive case that shows how – in specific and measurable terms – the firm’s human resources activities can and do contribute to creating value for the firm, for the firm, for instance in terms of higher profits and market value. Top management understandably wants its human resources professionals to create a strategy supporting human resources system. It also wants the human resource manager to be able to build a persuasive case that shows how – in measurable terms – the human resource system is in fact supporting the employer’s strategic aims.

At a minimum, employers use broad HR effectiveness measures such as revenues per full time employee to assess worker productivity. For example, one firm, Level 3 Communications Inc., uses revenue and income per full time equivalent employee, average full time employees’ overtime, the level of turnover and its associated costs, and overall human resource expenses. Median revenue and income per full time equivalent employee for a number of industries. In the United States, the Bureau of National Affairs, in conjunction with the Society for Human Resource Management publishes annual human resources department benchmarks and analyses listing industry wide metrics in areas including compensation and benefits, employees’ reactions and staffing.

Based on an ongoing research programs with over 2,800 corporations, forms that use high performance policies and practices do perform at a significantly higher level than those that do not. The evidence suggests that high performance HR practices, [particularly] combined with new technology, produce better productivity, quality, sales, and financial performance.

Translating Strategy into Human Resource Policy and Practice

As noted earlier, strategic human resource management means formulating and executing human resource policies and practices that produce the employee competencies and behaviors the company needs to achieve its strategic aims. The human resource manager therefore needs a practical way to translate the company’s strategy into required employee competencies and behaviors, and to translate these required employee competencies and behaviors into the specific human resources policies and practices that will produce them.

We outline the basic process below:

Basic Model of how to align HR strategy and actions with business strategy

Formulate business strategy: What are the strategic goals of the business. >>

Identify workforce requirements: What employee competencies and behaviors must HR deliver to enable the business to reach its goals?

Formulate HR strategic policies and activities: Which HR strategies and practices will produce these employee competencies and behaviors?

Develop detailed HR scorecard measures: How can HR measure whether it is executing well for the business, in terms of producing the required workforce competencies and behavior.

Management formulates a strategic plan. That strategic plan implies certain workforce requirements, in terms of the employee skills, attributes and behaviors that HR must deliver to enable the business to achieves its strategic goal.For example, must our employees dramatically improve the level of customer service? Do we need more computer literate employees to run our new machines? Given these workforce requirements, human resource management formulates HR strategies, policies, and practices it believes will produce the desired workforce skills, attributes, and behaviors. These may take the form of new selection, training, and compensation policies and practice, for instance. Finally, the human resource manager identifies scorecard measures (metrics) he or she can use to measure the extent to which its new policies and practices are actually producing the required employee competencies and skills and thus supporting management’s strategic goals.

Albertsons Example: How could Albertson’s human resources team help the company control costs and hire customer focused employees? At Albertsons, reducing personnel related costs and improving performance meant hiring employees who had a customer focused approach and reducing turnover, improving retention, and eliminating time consuming manual processes and procedures for store managers. Working with its information technology department, Albertsons’ human resource management team chose a system from Unicru of Portland, Oregon. The system collects and analyzes the information entered by applicants online and at kiosks. It ranks applicants based on the extent to which they exhibit the customer focused traits that predict success in retail jobs, helps candidates throughout the screening process and does other things such as track reasons for departure once applicants are hired. Human resource managers were able to present a compelling business case to indicate the new system’s return on investment. Working as a partner in Albertsons strategy design and implementation process, the human resources team helped Albertsons achieve is strategic goals, be helping to control costs an hire customer focused employees.