Measuring the ROI of HR

Measuring HR’s Return on Investment

A Society for Human Resource Management Presentation

© 2008 SHRM

Cake Baking


To measure or not to measure?!


Potential vs. Actual Use

95%

5%

BrainCapacity

Actual Use


Source of value has shifted from tangible to intangible assets.

1982 and 1992 - The Brookings Institution analysis of S&P500 companies. 2002 - Kaplan & Norton

3862

85

6238

15

0

20

40

60

80

100

1982 1992 2002

Intangible Assets Tangible Assets In 1982, intangible assets comprised 38% of a company’s market value.

By 2002, that number soared to 85%!


Value vs. Quality Measurement

85 82 79

67

52

29

61

41

16 16

0

10

20

30

40

50

60

70

80

90

% highly value information

% willing to bet their jobs onquality of info

Financial Performance

Employee Performance

Operating Efficiency

Perc

ent o

f Exe

cutiv

es

Customer Satisfaction

Innovation/Change


Quality of Measures




Perc

ent o

f Exe

cutiv

es

92

63

43

17

88

69

42

27

0

10

20

30

40

50

60

70

80

90

100

Believe meaures are clearly defined in eachperformance area

Report measures are updated and reviewed atleast semi-annually



Use of Measures




Perc

ent r

epor

ting

mea

sure

s

98

8576

57

80

62

43

29

94

54

3726

0

20

40

60

80

100

120

Included in regular mgmt reviews

Used to drive org. change in each area

Linked to compensation



HR involvement in strategic activities

Of the following activities, to which are your HR department most frequently sought to contribute?

• Recruit and retain – 77%• Health care costs – 60%• Keep costs down – 49%• Human capital strategy – 22%• Head strategic planning – 16.5%• Measure business drivers – 16.5%

Source: SHRM Weekly Survey, March 2004


Measurement Philosophy – Old vs. New

The fundamental distinction between old and new measurement philosophies is “an understanding of the contribution of the workforce versus a focus on understanding the cost of the workforce.

Source: The Workforce Scorecard: Managing Human Capital to Execute Strategy


7 principles for effective workforce metrics

1. Recognize and work to change outdated management perceptions of workforce value and HR measurements.




2. Metrics must be dependent upon the alignment of the workforce with the organization’s overall business strategies.


On Strategy…

Strategy is the result of a unique set of organizational activities that bring the value proposition to the customer.


Strategy development process

HR Strategies

Workforce Strategies

Business Strategies

Process starts at the bottom. Business strategies are the foundation.

Source of concept: Huselid, Becker & Beatty


Organizational value creation process

HR Strategies

Workforce Strategies

Business Strategies

Process starts at the top. HR strategies drive value creation for workforce and business strategies.

Source of concept: Huselid, Becker & Beatty


Organizational value creation process

Value Creation Process

HR practices

HR mgmt. systems

HR competencies

Leadership/ workforce behaviors

Workforce culture/ mind-set

Workforce competencies

Financial success

Customer success

Operational success


Percent of Organizational Operating Budget

1%

70%

0%

20%

40%

60%

80%

HR Workforce

HRWorkforce


SYSCO: Metrics Show that Units With High Employee Satisfaction Perform Better Than Units with Lower Satisfaction.

0

25

50

75

100

EmployeeSatisfaction

UnitPerformance

Unit Cust.Feedback

Unit A

Unit B

Unit C

These percentages are sample, not actual

results.





3. Workforce differentiation is key.


Differentiation

When determining employee value relative to organizational strategy, not all things are created equal.


Myth: More is better





3. Workforce differentiation is key.

4. Answer the right questions, not all the questions.


• Customer complaints as a proportion of sales• Number of new product offerings unlike anything

sold by the competition• Percent of “A” customer retained• Percent of customers who believe their

issues/concerns are listened to and addressed• Public perception of organization as a market

leader• Quality of brand awareness

Sample Workforce Success Metrics




4. Answer the right questions, not all the questions.

5. Responsibility must be shared by HR and line management.


Business and Workforce Strategy Roles


Line ManagersWorkforce mind-setIdentify “A” positions/playersAssess “B” players with “A” potentialDevelopmental plans for “A” and “B” players“C” player exits

HR Function

Workforce differentiation practices such as:

• Selection• Development• Performance• Rewards• Communication

Workforce metrics




6. Take time to evaluate and adjust.




6. Take time to evaluate and adjust.

7. Metrics must be founded upon the rock of communication.


Employee satisfaction/engagement 63%

Leadership 60%

Remuneration 59%

Productivity (revenue, profit) 53%

Competencies/training 50%

Turnover 50%

Recruitment 48%

Percent of HR execs who believe metrics in the following areas increased manager understanding of human capital’s connection to strategy.

Source: The Conference Board, Measuring More Than Efficiency. 2005, January.


Source: The Conference Board’s “Measuring More Than Efficiency” 2005 study

Measurement reporting:

Report findings to senior leaders on a quarterly basis

63%

Report findings to senior leaders on a monthly basis

44%

Report findings to all business managers

19%


Value of Measurement Management

Non-Measurement Managed Orgs.

Mea

sure

of S

ucce

ss

74

44

83

52

97

55

0

20

40

60

80

100

120Perceived as industry leader past 3 yrs

Financially ranked in top 1/3 of industry

Last major cultural or operationalchange judged successful

Measurement Managed Orgs.

Source: William Schiemann & Assoc.


SHRM HR Measurements Forum www.shrm.org/metrics


"Each problem has hidden in it an opportunity so powerful that it literally

dwarfs the problem.

The greatest success stories were created by people who recognized a

problem and turned it into an opportunity."

- Joseph Sugarman, Author and Innovator


Thank-you

A Society for Human Resource Management Presentation


Measuring the ROI of HR

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