Drucker was also quoted as saying that, “If you can’t
measure it, you can’t manage it”.
The fact remains that you need to know your current state of performance
before you can look at means to improve it. Measurement provides
you with information on the status of any performance. It represents
a feedback mechanism, indicating what’s working well and what
isn’t. But the trick lies in figuring out exactly what it
is you need to measure. You don’t want to be measuring the
wrong thing. Taking in too many indicators could result in losing
sight of the objective of measurement. What if you’re using
the same measurement to evaluate performance across many levels
– surely, the measurement needs to be varied somewhat?
are many tools available, from the Balanced Scorecard to the Return
on Investment (ROI) method. But no single tool fits all organisations
and may vary depending on whether you’re considering the private
or public sector. While similar concepts of measurement may apply,
the indicators are sure to vary, sometimes requiring customisation
and some degree of alignment to the enterprise-level performance.
What HR metrics represents is a comprehensive analysis of key indicators
focused on the HR structure, HR processes and activities, financial
expenses, and time spent by an organisation. It seeks to provide
detailed information on the effectiveness and efficiency of an organisation’s
HR management system in comparison to the overall organisational
performance. In essence, HR metrics portrays the HR function’s
contribution to the organisation. As a method of quantifying the
impact of HR, its programmes and activities, it includes both leading
(future predictors) and lagging (historical/financial) indicators.
metrics was conceptualised by Dr Jack Fitz-enz, the founder of the
Saratoga Institute, now known as PWC-Saratoga. The HR indicators
conceptualised by Saratoga are comprehensive and benchmarked against
relevant industries as well. Using an empirically verified measurement
model of performance in HR management based on data from 15,000
companies, the outcomes from the benchmarking exercise are as follows:
Indicative HR management strategy priorities
Effectiveness of HR function
Indicative of the best methods, HR concepts and best practises
within HR functions
HR process control
Optimal HR staffing ratio
However, based on experience, I have found that many HR practitioners
are sceptical in embarking on HR metrics. HR functions often collect
data on their efficiency, but not on the business impact of their
programmes and practices. This is a crucial point because HR organisations
that collect effectiveness data are more likely to be strategic
It’s not doing for doing’s sake but about real results.
If HR wants to play a strategic role in organisations, then it needs
to develop its ability to measure how human capital decisions affect
the business and how business decisions affect human capital. The
table below is a sample of indicators used as HR Metrics by PWC-Saratoga.
to business results
how do we ensure that various measures employed are linked to business
results? Well, the intent of HR metrics is not just to evaluate
the HR function effectiveness or efficiency but to link the metrics
to the overall business performance. Each of the measurements or
indicators, which are components of the HR metrics have significant
links to the business operations.
Let’s take time-to-hire measures, as an example. The shorter
the time-to-hire, the faster the new employee will be contributing
to the function he has been hired for. This then translates to increased
departmental productivity which thereafter leads to overall business
consider the training investment per employee. Obviously if the
organisation is willing to spend more on employee training, then
employee productivity will grow as well. But it must be investment
in the right sort of training; there are companies which invest
in wrong training interventions and expect miracles. I am positive
that each of the measures that forms the HR metrics contributes
to the overall business performance either directly or in-directly.
are many common measurements including attrition rates, time-to-hire,
cost per FTE, average remuneration etc. These measurements can be
categorised into the following buckets:
Compensation and benefits
Learning and development
Behaviours which includes attrition rate and absenteeism
integrity is key
In my opinion, all of the above are important and to gain positive
impact of the HR metrics, we have to measure all. However, this
is not easy since the process involves data gathering, validation
and performing in-depth analysis.
As someone from within the HR profession and having performed a
fair number of HR health-checks and consultation in numerous organisations,
I believe that HR practitioners need to improve their business analytical
skills. They need to ensure that the HR function has a proper HR
Information System (HRIS) that captures the right information for
analysis. It’s all about having the right data.
in summary, if possible, carry out all those measures. However,
if you’re limited in terms of data access, then focus on the
quick wins so that you can showcase these to management to garner
support for better data access. Keep in mind that some organisations
may regard the overall financial information as confidential which
will impact on your ability to perform those measures that need
Almost all of the matrices buckets highlighted above are useful
to the organisation as a whole. These measures are not meant to
glorify HR’s relevance but serve to relate the Human Capital’s
(HC) contribution to the overall organisational performance.
But I cannot stress further the importance of data integrity. If
you do not have a proper HRIS from which the data-mining is done
for analysis, than you can forget about HR metrics. But having a
state-of-the-art HRIS is only side of the equation – how valid
and accurate the data in the system is actually the prime concern
when we look at measurement.
there are at least two things you can do to preserve data integrity.
Firstly, take responsibility and ownership. Continuously monitor
and perform validation checks on the data. There is no short-cut
to validation other than performing periodic data sanity checks.
This may involve engaging each and every department and even every
individual in the organisation to perform data cleansing. This needs
I cannot emphasise any further the importance of a reliable HRIS
with accurate data. There is a compelling need for HR to engage
the business functions and demonstrate the importance of having
the right data.
when one starts to look at metrics in detail, the critical issues
come to the fore. Take time to hire as an example. What is the critical
issue here? Hiring or resourcing is one of the key functions of
HR. HR may be mandated to manage the entire end-to-end resourcing
in the majority of organisations. You need to analyse the entire
process and all the steps in resourcing. In most cases, there is
a fair share of line/functional involvement in resourcing especially
when hiring for jobs that may need specific technical expertise.
HR needs to chart the entire process, capturing external factors,
internal involvement, time to perform each process and eventually
dictating a proper service level agreement for hiring. If HR can
remain transparent, objective and clearly articulate the process
challenges, the stakeholder engagement will be better as the time-to-hire
matrices would have been charted with the right considerations.
Most times, the failures in time-to-hire measurements are due to
unrealistic commitments made without scrutinising the processes.
One also cannot forget the external environmental and in particular,
the economic conditions which may over-ride your existing processes.
Time to hire however, is just one component of resourcing. There
are more comprehensive matrices that relate the effectiveness of
hiring function by:-
External recruitment rate
External replacement rate
Cost per hire
Time to accept
Time to start
Graduate recruitment rate
Graduate retention rate
Internal appointment rate
Internal promotion rate
this to say, ROI on training initiatives. Investment in employee
training is another key contributor to an individual employee’s
productivity and the overall organisational performance. Many HR
practitioners are indeed sceptical about measuring training ROI
and claim that it’s not possible or even difficult. But really,
this is more a case of ignorance of the measurement tools rather
measures for training effectiveness were conceptualised by Kitpatric,
who introduced the four levels of evaluations as below:
Level 1 – Reaction (Evaluate the trainees’ reaction
to the programme)
Level 2 – Learning (Test the skill and knowledge gained
by the trainee)
Level 3 - Behaviour Application (Evaluate changes that are observed
of the trainees ‘ behaviour post-training)
Level 4 – Business impact (Measure the change in the productivity
level of the trainee)
The ROI on training does not stop there. Other measures includes
frequency of training, hours of training, investment on training
by FTE, span of coverage by the L&D function and many more.
Learning and development (L&D), L&D investment per FTE,
L&D investment per compensation and training cost per FTE (internal/external)
will complement the ROI on any training as well.
Saratoga measurement model
Saratoga Model applies measurement and benchmarking methodology
which incorporates both tangible and intangible aspects of people
and people management, bridging the gap between HR inputs and processes,
and business outcomes. It advocates treatment of human capital as
any other organisational asset. It provides an avenue for human
capital measurement and paves the way to actually realise the true
meaning of the overly-used phrase “human capital is our most
valuable asset” by many organisations. The Saratoga model
links and aligns HR strategies to the business strategies.
Saratoga methodology of benchmarking is, I believe, very useful
for organisations to evaluate their current human capital positioning
at various levels. At the most basic level, it evaluates the alignment
of business goals and people related action. It provides clarity.
Moving up another level, it looks at a comparison of best practices
within the organisation. It provides information on inter-departmental
process efficiency and effectiveness. The next benchmarking level
looks at an external comparison which provides insight on the organisation’s
positioning as a whole within the parameters evaluated with relevant
industry players. It also provides market positioning information,
useful for strategic intervention based on the future direction
set by the management. In truth, I have to admit, that the benchmarking
database support provided by Saratoga is very impressive since it
cuts across multiple industries and regions.
Model is said to focus on a number of areas including HR programme
effectiveness and HR delivery effectiveness. The metrics measured
in the model allow the management of an organisation to have better
insight into their workforce efficiency and effectiveness and establish
proper monitoring and control mechanisms. These metrics are focused
on specific areas and allows the right interpretation of the workforce
productivity level, efficiency and effectiveness of processes and
systems in place, the workforce contribution to the unit costs and
the output level. It also establishes an accountability framework
for key personnel, including HR, within the organisation.
The framework incorporates three key workforce metrics namely, return
on workforce investment, workforce productivity and unit costs.
It also measures the key levers of these metrics.
terms of HR program effectiveness, we are looking here at intervention,
impact, satisfaction and cost.
A focus on effectiveness here is on whether the HR programmes and
practices have the intended effect on the people or talent pool
toward which they are directed. In the case of training and development,
for example, true effectiveness metrics should offer information
on whether employees build needed skills . It should look not just
at participation in the training programmes but also consider employee
and management satisfaction with the training provided. If one is
to measure only the participation in HR programmes, it really offers
no insight into the effectiveness of the programme.
While satisfaction surveys can be a useful tool for gauging the
alignment between HR services and the opinions of HR's customers,
they do fall short of providing the needed insight into the impact
of the training programme itself, for example.
HR effectiveness measures
Cost per Hire
Time to Fill
Length of Employment
performance: “Recruiting” metrics:·
New Hires Performance Appraisal
Hiring Manager Satisfaction
Turnover Rates of New Hires
Financial Impact of Bad Hire
performance: “Retention” metrics:·
performance: “Training and development”
and Growth Opportunities
On-the-job learning Content
Opportunities for New Hires
terms of HR service delivery effectiveness /FTE Ratio, this actually
concerns the efficiency of the HR function. In particular, it looks
at how well the HR function performs its basic administrative tasks.
The metrics that can be collected in order to assess HR efficiency
include productivity and cost metrics for the HR function such as
time to fill open positions, HR headcount ratios, and administrative
cost per employee. A comprehensive set of metrics are available
to analyse this.
Saratoga Model also incorporates “the Voice of Customer”
(VOC) survey to get direct feedback from HR services stakeholders.
The three components within VOC are:
HR partnering - which evaluates the perceived contribution of
HR Business Partners
People Processes - which evaluates how well the people related
process is executed
HR style - which evaluates the perception of the style of working
by the HR function.
above components consists of a list of questions which is administered
to all stakeholders for their feedback. The results are then benchmarked
with the existing survey repository of Saratoga that enables the
organisation to have a comparison of their results with others within
the same industry. A key measure of HR effectiveness is the HR Ratio
(HR-to-employee ratio). This ratio has to be interpreted correctly
or risk controversy. The ratio varies with the nature of industry,
the HR delivery model of the organisation as well as the size of
following is the average HR-to-employee ratio derived from the Society
for Human Resource Management (SHRM) Human Capital Benchmarking
Study based on organisational size as a baseline indicator.
Size (no. of employees)
you can see, there is a lot of information available on HR metrics
and measurement. My advice to HR practitioners will be for them
to do some thorough analysis and research on this area before embarking
on this initiative. I wish to record my thanks to Mr. Richard Phelps
of PWC-Saratoga, UK for the guidance given on HR Metrics during
my short stint in the UK.