Peter 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?

There 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.

HR 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 partners.

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.

Source: PWC-Saratoga

Linking to business results
So, 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 performance!

Similarly, 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.

There 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:

• Financials
• Productivity
• Compensation and benefits
• Resourcing
• Learning and development
• Behaviours which includes attrition rate and absenteeism
• Workforce structure

Data 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.

So 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 financial information.

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.

And 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 passion!

Secondly, 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.

Now, 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:-

• Resourcing
• External recruitment rate
• External replacement rate
• Cost per hire
• Time to accept
• Time to start
• Acceptance rate
• Graduate recruitment rate
• Graduate retention rate
• No-show rate
• Internal appointment rate
• Internal promotion rate

Compare 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 than difficulty.

Evaluation 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.

The Saratoga measurement model
The 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.

The 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.

This 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.

In 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.

In 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.

The 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.

The 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 the organisation.

The 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.

As 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.