Measurement in Human Resource

Dr. Ashok Kumar Professor and Head (HR & OB) Amity Business School, Lucknow

Contents
Module I: Introduction and the Challenges of Measurement Module II: Developing Measurement Metrics Module III: Designing the Metrics Module IV: Specific Topics in Measurement Module V: TQM and HR Audit

Module I: Introduction and the Challenges of Measurement

Introduction: Meaning & Definition of HR Measurement Importance; Development of Concept. HR Measurement for HR Professionals: Investment in Human Resources, Efficient use of Human Resource Adopting the Right Perspective: Understanding the Role of Workforce in Strategy Implementation

Introduction: Meaning & Definition of HR Measurement Importance; Development of Concept

Modern view of HR
HR is moving away from the transactional, paper pushing, hiring/firing, support function to a bottom-line decision making Weak positive linkages of HR-Firm performance relationship Difficulty in demonstrating HR value to stakeholders Legitimate questions about HR related expenditure

Managing People in Organization

People management embraces two related concepts replacing Personnel Management : 1. Human Resource Management (HRM) 2. Human Capital Management (HCM)

Relationship between aspects of people management

PEOPLE MANAGEMENT

HUMAN RESOURCE MANAGEMENT

HUMAN CAPITAL MANAGEMENT

PERSONNEL MANAGEMENT

Human Resource Management (HRM)

It is defined as a strategic and coherent approach to the management of an organizations most valued assets-the people working there who individually and collectively contribute to the achievement of its objectives

Characteristics of HRM
Diverse Strategic with an emphasis on integration Commitment oriented Based on the belief that people should be treated as assets (Human Capital) Individualistic approach in employee relations A management-driven activity-the delivery of HRM is a line management responsibility Focused on business value

What is Human Capital?

Human Capital
The knowledge, skills, and capabilities of individuals that have economic value to an organization. Valuable because capital:
is based on company-specific skills. is gained through long-term experience. can be expanded through development.

Human Capital Management (HCM)

It focuses the attention of an organizations leadership team to increase the added value they obtain from people. The development of measurement systems to showcase HR impact on business performance as an important contribution of Human Capital Management (Becker et. al.2001)

Human Capital Measurement

Human Capital measurement has been defined as discipline of finding links, correlation and, ideally causation, between set of HR data, using statistical techniques. Measuring progress in achieving strategic HR goals Evaluating effectiveness of HR practices Human capital is one of the means to create value

Value Creation
Value Creation: It means contributing in a measurable way to achieving the companys strategic goal People Management (HRM and HCM) create value by engaging in activities that produce employee behaviors the company needs to achieving strategic goals

Characteristics of HCM
Use of metrics Treating people as assets Strategic investment in assets Emphasis on strategic advantage

Human Capital Management can also be regarded as the umbrella term of three different disciplines, so:
HCM = Human + Asset Management Human + (Culture) Management Human Potential Management

The Human Capital Architecture

Core knowledge workers
Employees who have firm-specific skills that are directly linked to the companys strategy. Example: Senior software programmer

Traditional job-based employees

Employees with skills to perform a predefined job that are quite valuable to a company, but not unique. Example: Security guard

The Human Capital Architecture (contd)

Contract labor
Employees whose skills are of less strategic value and generally available to all firms. Example: General electrician

Alliance/partners
Individuals and groups with unique skills, but those skills are not directly related to a companys core strategy. Example: Independent product label designer

New Proficiencies of HR Managers

HR proficiency Business proficiency Leadership proficiency Learning proficiency

HR Proficiency
Traditional knowledge and skills in areas such as recruitment, selection, compensation, performance appraisal, training and development, IR etc.

Business Proficiency
Reflect the new role of HR professionals in creating profitable enterprises that serves customers effectively HR professionals must understand how a company operates including strategic aspects, marketing, production, finance etc. He must be able to speak the CFOs language by measuring and explaining HR activities in terms business managers understand such as, ROI, payback period, cost per unit of service etc.

Leadership Proficiency
Ability to work and lead teams Ability to drive changes needed to implement best practices in HR activities

Learning Proficiency
Because of competition and new technology, need of HR professional is to be updated Abilities to apply new technologies and practices affecting the HR profession

Definition of HR Measurement
Quantitative measurement of efficiency and effectiveness of various HR operations and impact of HR on business performance through certain metrics against agreed standards and benchmarks Metrics: A set of quantitative performance measures HR managers use to assess their operations and their impact on business performance Without a standard or benchmark, no matter what is measured, the metrics do not mean any thing

Use of HR Measurement
Decision making Assessment of performance Assessment of new program/proposal Cost-benefit analysis Linking with ERP, business scorecard, HR scorecard Future planning Assessment of value creation

Importance of measurement in HR
Increased importance of HR due to competition has increased pressure for measurement like other functions such as finance, marketing etc. Historically, HR was exempted from numbers HR as cost centre Intuition and impression

Importance of Measurement in HR (Contd.)

Extending the credibility of HR Placing human capital firmly and strategically on the organizations balance sheet Measurement represents a powerful tool by which HR can change the way it works and the value the organization perceives it to create.

Importance of Measurement in HR (Contd.)

Emphasis is on: Productivity Cost-reduction Quality

HR Measurement for HR Professionals: Investment in Human Resources, Efficient use of Human Resource

Implications of HR Measurement
The organization may benefit from periodical HR assessment of its employees. For instance, tracking absenteeism can help increase productivity, or measuring diversity can help save a company from costly discrimination awards Besides, HR data may be used in creating financial reports in order to link human resources measurements to ROI. On the whole, HR measurements transform human resources capabilities to measurable strategic value, which provides for better accessibility and readability of HR data, and improves HR interconnection with other functions across the organization.

Status of Measurement in HR
Lack of HR-specific enterprise data collection and reporting resulting into low level of measurement and metrics development and utilization Less than one-fifth organizations use any metrics to measure HR performance Less use of IT in measuring HR activities HR related data available with only HR department

HR Measurement for HR Professionals

The most widely used HR metrics are typically concerned with: employee attitudes employee turnover employee recruitment employee retention employee training and development

HR Measurement for HR Professionals (Contd.)

Each metric contains 2 to 5 performance indicators. For instance, employee attitudes metric includes the following indicators: Job Contentment (the percentage of employees satisfied with their job) Manager Contentment (the percentage of employees satisfied with their manager).

HR Measurement for HR Professionals (Contd.)

Employee turnover metric generally includes such indicators, as : Turnover Cost (calculation of termination, new hire, vacancy and learning curve costs) Turnover Rate (rate of the employees leaving an organization) Time to Fill (the period from job requisition approval to new hire start date)

HR Measurement for HR Professionals (Contd.)

Recruiting metric includes:

Cost per Hire ( advertising, agency fees, employee referrals, relocation, recruiter pay and benefits costs and the number of hires) Vacant Period (number of overall days the positions were vacant) New Hires Performance Appraisal (average performance of new hires, compared to existing employees) Manager Satisfaction (satisfaction of hiring managers) Turnover Rates of New Hires (during a specified period) Financial Impact of Bad Hire ( cost per hire, productivity of new hire).

HR Measurement for HR Professionals (Contd.)

Retention metric includes: Overall Employee Turnover, especially in the key and critical positions Preventable Turnover (this indicator considers the reasons the employee left the organizations and what measures may be taken to prevent it) Diversity Turnover (turnover rate in professional, managerial, and technical positions, women employee turnover rate) Financial Impact of Employee Turnover.

HR Measurement for HR Professionals (Contd.)

Training and Development metric includes: Learning and Growth Opportunities (percentage of employees who are satisfied with the learning and growth opportunities in the organization) On-the-job learning Contentment (percentage of employees who are satisfied with on-the-job learning, project assignments and job rotations) Opportunities for New Hires (percentage of employees who report training opportunities among the top three reasons they accepted the job).

HR Measurement for HR Professionals (Contd.)

Although most organizations use similar set of HR measurements, however, even common metrics don't always include standard components. For instance, a common cost per hire metric may contain different expense categories, such as advertising, online services, background checks and recruiter costs

Human Capital Measurement for HR Professionals

Status of competencies that drive business performance Value focused measurement instead of activity focused Potential measurement HR scorecard Employee retention rate Talent acquisition

Approaches to Human Capital Measurement

1. 2. 3. 4. 5. 6. The Human Capital Index The Organizational Performance Model The Human Capital Monitor Sears Roebuck Model The Balance Scorecard EFQM Model of Quality

Difference between HR measures and Human Capital measures

HR measures tell about HR department where as Human Capital measures tell about HR efficiency and effectiveness in the entire enterprise HR measures are narrow approach to HR valuation whereas Human Capital measures are broader HR measures normally tell about past, Human Capital measures predict future performance of enterprise

Adopting the Right Perspective: Understanding the Role of Workforce in Strategy Implementation

HR and Implementation of Business Strategy

Implementation and execution are most critical aspects Implementation is only through People HR cannot be sidetracked HR has to create confidence in CEO, CFO,COO and other stakeholders HR has to create and use business specific HR data

Role of HR in preparing people for implementing business strategy

Placing the right person on the right job Orientation for new employees Training employees for the job that is new to them Improving the job performance of each employee Developing smooth working relationship Gaining creative cooperation

Role of HR in preparing people for implementing business strategy (Contd.)

Modifying and interpreting HR policies Creating and maintaining morale Protecting employees health and physical condition

Individual Assignment
Each student has to submit learning (in Hard Copy) of the paper Human Resource Measurement: The Present and Way Forward by Shahina Javed, XLRI, Jamshedpur by January 16, 2013

(wednesday)