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After decades in the people analytics space, Intel’s Talent Management leader Alexis Fink has seen her fair share of data, and the way people use and abuse it.
As such, she’s often seen brilliant HR teams fall into the unfortunate trap of reacting to executive decisions instead of using data to illuminate the important factors that should influence those decisions.
Without a clear understanding of how HR metrics can shape strategic and financial goals, many decision makers at the HR level fail to leverage them effectively.
Not on our watch.
What are HR metrics?
HR metrics use data to measure how efficient, effective, and impactful a company’s HR program is. They empower organizations to calculate the ROI of a department.
This finally gives HR teams the opportunity to prove just how much value they’re capable of generating for the bottom line when it comes to workforce productivity, recruiting, employee satisfaction, and more.
Why should you care about HR metrics?
For too long, many employees have thought of HR as the department that cuts their benefits, enforces confusing compliance policies, and doles out punishments when all they did was cut loose a little—and jump in the hotel fountain—at the holiday party.
The truth is, that’s a far cry from the heartfelt and strategic work that makes up an HR department. HR functions are often responsible for the positives within a company. In fact, they’re the reason you are protected by compliances and even get benefits in the first place!
It’s unfortunate that HR professionals are all too often characterized as “bad guys” and their hard work goes underestimated and unappreciated.
HR metrics can help change this unfair stigma when leveraged correctly.
HR performance is notoriously hard to quantify. The department’s responsibilities focus primarily on human capital, something that ADP calls the most important and challenging asset an organization has:
“Assessing the value of human capital (HC), the most important asset of any organization, has long been easier said than done. Because it is such an intangible asset, assigning a value on a balance sheet is a perennial challenge.
There are no generally accepted standards for measuring the value of people, unlike the readily available tools for quantifying the value of tangible assets such as equipment, office furniture or accounts receivables.”
Because of this, those in HR leadership are often forced to improve upon activity and efficiency rather than fight the uphill battle to prove their effectiveness and influence on the company goals.
But when those HR professionals know how to effectively use HR metrics, they can demonstrate their department’s value and develop strategies to crack the code for improved productivity, decreased turnover, and all-around better human capital management.
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When HR improves, the entire organization benefits. That’s why companies like KinHR and Breezy HR literally built entire platforms devoted to empowering HR teams to succeed and become more efficient.
Dagrofa, a Danish enterprise food company with over 19,000 employees, has seen significant returns after creating a more efficient and scalable onboarding flow.
The more that HR teams can demonstrate this type of massive contribution by way of numbers, the more opportunity they’ll get to grow and expand the function.
Let’s look at a few ways to both measure and optimize metrics that will help you do just that
The 6 HR metric categories your organization should measure, according to an expert
Every organization should evaluate which unique HR metrics are right for them. But sometimes it’s nice to know where to start.
Because we get that and we want to help you become a leader in HR metrics, we’ve outlined six HR metric categories that will help any HR department prove their mettle.
Overall workforce productivity
According to Dr. John Sullivan, a renowned leader in talent management, “The very best measure of overall HR success is workforce productivity.”
Improving productivity is a lofty goal; and one that can be especially hard to quantify. Make sure you have the stats to show your success by keeping an eye on the gap between people costs and company revenue.
Also look for opportunities to decrease manual or repetitive tasks that happen in HR departments. When you remove these tasks, HR professionals are left with more time to improve strategy, execution, and other cognitive activities. A great rule of thumb here is: If it’s a high-volume, mindless task, automate it.
Specific metrics to measure here include:
- Percentage of improvement in workforce productivity
- This can be calculated by tracking dollars spent on people costs for every dollar of revenue (or profit) generated.
- The monetary value of increased workforce productivity
Employee engagement
Engagement is important to measure because it counterbalances productivity. Focusing solely on productivity can cause employees to over-work and eventually burn out. In turn, that will negatively affect retention, turnover, and productivity in one fell swoop.
Specific metrics to measure here include:
- The percentage of employees who report that they look forward to coming to work
- The percentage of people who feel like they’re given the tools or resources to do their job well
- The percentage of employees who feel their managers have good managerial tendencies
- Your HR team can define these ideal tendencies; such as assigning rewarding work, providing growth and learning opportunities, etc.
Recruiting
HR’s responsibility in recruiting is important to define because there are so many factors within a business that attribute to turnover.
When it comes to recruiting HR metrics, we recommend spending some time focusing specifically on new hires as their experience with the company is largely influenced by their contact with the HR department.
Specific metrics to measure here include:
- How long a position was vacant
- Average performance of a new hire now compared to performance in that same role a year ago
- How quickly a person is able to be onboarded once an offer is on the table
- Manager satisfaction with new hires compared to last year’s satisfaction scores
- Turnover within the first year of employment
- How diverse new hires are, especially in key positions
- The overall monetary impact a bad hire in a key position has
Manager satisfaction
This category provides an opportunity to remember that the HR metrics we’re talking about here involve real-life people and all their unique quirks and biases.
When it comes to asking a manager to provide feedback on their satisfaction with HR, their answer might depend on their personal relationship with colleagues in that department.
Take extra care when collecting data for this HR metric to ensure it’s as unbiased as possible.
A specific metric to measure here includes:
- Average rank of HR functions
- Instead of singling out HR, Dr. Sullivan recommends using a survey that asks managers to rank each of the organization’s overhead functions in order of how they contribute to productivity and performance—HR included.
Retention and turnover
Dr. Sullivan suggests that simply looking at turnover metrics doesn’t tell the whole story. Instead, view turnover through the lens of retention strategies to learn what is and isn’t working.
Specific metrics to measure here include:
- Performance turnover in key roles
- Sullivan weighs high performers more heavily and low performers more lightly than average performers to give this HR metric maximum impact.
- Preventable turnover in key roles
- These are cases where an exit survey identifies that the reason an individual left the organization could have been reasonably prevented.
- Diversity turnover in leadership and technical roles
- The overall cost of employee turnover in important positions
- Managerial satisfaction with HR’s retention efforts and the impact they have on productivity
Overall monetary impact of HR on your business
Since an HR department doesn’t directly generate income, it’s vital they’re able to prove the value they provide in attracting and retaining human capital who widen the gap between cost and income over time.
Specific metrics to measure here include:
- Actual dollars of HR costs compared to revenue, year over year
- The monetary impact of HR as a direct result of their recruiting, retention, and productivity efforts
Collaborate and define to determine the right HR metrics for you
At the risk of it sounding like a cop out, we have to warn that the metrics your HR department chooses to measure really should depend on your organization’s business strategy and overall goals.
What we can recommend again is ongoing collaboration to make sure everyone’s on the same page.
During this collaborative effort, the CHRO should ensure that the desired outcome for each HR metric is well defined. What organization-wide strategy does it align with? Furthermore, what exact data will each HR metric gather and what formula will it use to arrive at a quantitative measurement?
Along with collaboration, definition is a vital step in using HR metrics to convey the positive impact HR has on revenue.
Three ways to effectively measure HR metrics
1. Understand HR metrics are worthless in a vacuum
We’re pretty big on data around here. It’s important to us because it’s important to the professionals who trust us to simplify their complex workflows and keep their data safe.
So while we appreciate HR metrics, we don’t want to gloss over the fact that that they can’t help quantify the value of an entire HR department all on their own.
HR metrics are data points that show you what is happening in your organization. Further analysis can uncover why those things are happening. Together, they should feed into a strategy that moves the needle on business goals.
2. Make HR metrics hyper-relevant with collaboration
HR departments of the past weren’t known for their positive impact on the bottom line. That’s why it’s more important than ever to make it clear why leadership should invest in their best ideas.
HR metrics that don’t directly correlate with decision making are, in a word, useless. This is where collaboration comes in.
Whenever possible, the CHRO (chief human resources officer) should involve their CFO—or another executive—in the process of selecting which HR metrics best prove their direct, strategic impact on the business.
Not only will HR leadership have a champion in their corner, they will always be prepared with hyper-relevant HR metrics that quiet any doubts and answer any questions from the C-suite.
3. Prove it with a business case
Once an HR team has a firm grasp on their role in a company’s growth strategy and has honed in on the metrics that are important to their leadership team, how do they acquire the support they need to really leverage HR metrics?
They prove it with a business case.
There are specific analytics that prove successful human capital management positively impacts company goals. Defining these analytics and creating a direct link between them and HR metrics are grounds for a rock-solid business case.
People analytics expert Alexis Fink uses the example of improving the rate of employee departures.
Exit survey HR metrics could uncover an unusual number of ex-employees reporting a poor relationship with their manager. This data could lead an HR professional to deduce that new hires should be assigned to certain managers via a personality test. By spending a little time and money implementing this matching program, the company could save a lot of time and money on recruiting, onboarding, and other costs associated with employee departures.
“It is the insight that produces value, not the metric itself.”
Let the metrics speak for your hard work
Gone are the days when HR professionals were expected to do little more than manage wages and play bad cop.
Modern HR departments have data that can crush goals and illuminate opportunities to quantify misunderstood assets and boost bottom lines.
All it takes is one innovative HR professional to empower them to leverage HR metrics.
Will you be the hero HR deserves?
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