THE MEASUREMENT CHALLENGE : ATTRIBUTES AND RELATIONSHIPS
When we speak of measurement as a strategic resource for HR managers, what do we really mean? For example, many firms identify one or two â€œpeople-relatedâ€? measures, such as employee satisfaction, in a balanced measure of corporate performance. Line managers, even HR managers, might be held accountable for these measures, which could also be incorporated into the managerial bonus plan. Such measures capture the quantity, or level, of a particular attributeâ€”in this case, employee satisfaction. How much is there? Does it change over time? How does it compare with that of other firms, or across SBUs? Most of us would assume that more of this attribute is a good thing. We say â€œassume,â€? because in many firms there is probably little evidence supporting the link between employee satisfaction and firm performance. Such organizations emphasize the level of the attribute, rather than the relationship between the attribute and some strategic outcome (performance drivers or firm performance).
Good measurement requires an understanding of and expertise in measuring both levels and relationships. Too many HR managers under pressure to demonstrate the HR-firm performance relationship rely on levels of HR results as proxy for measurement of that relationship. In other words, they canâ€™t show the direct causal links between any HR outcome and firm performance, so they select several plausible HR measures as candidates for strategic driversâ€”and then simply assert their connection to firm performance.
This inability to demonstrate these relationships is sometime obscured by diagrams that vaguely suggest cause and effect. A firm might include one or two measures under each of these three categories and do a good job of measuring the levels of those attributes. But what does doing well on those measures really mean? The arrows imply that better performance on the â€œPeopleâ€? dimension improves performance on the â€œCustomerâ€? dimension, which in turn will improve â€œProfits.â€? But the real story of value creation in any is much more complicated, so this â€œstoryâ€? is incomplete. It provides only the most superficial guide to decision making or performance evaluation. Itâ€™s only marginally better than traditional measures that make no effort to incorporate a larger strategic role for HR. Boxes and arrows give the illusion of measurement and understanding, but because the relationship measures are so limited, such diagramsâ€”and the thinking behind themâ€”can actually help to undermine HR confidence and credibility.
Even though relationship measurement is the most compelling assessment challenge facing HR managers today, attribute measures should form the foundation of your measurement system. Why? Because evidence of a strong relationship between A and B is worthless if the measures of A and B themselves are worthless. But words such as â€œworthlessâ€? or â€œusefulâ€? or â€œappropriateâ€? arenâ€™t precise enough for our discussion about the elements of good measurement. In fact, there are well-defined principles delineating effective measurement practice. Understanding those principles lets you take that essential first step in developing a strategically focused HR measurement system.