You may have heard the popular saying "If you're not keeping score, then you're just practicing." This is a good metaphor for the imperative that we create and track metrics in any business endeavor, including human resources.
There's often the false perception that human resources can't be reduced down to numbers. This inaccurate assumption is even held by some ‘old school' HR professionals.
Not only can the effectiveness of HR be demonstrated in quantitative terms, it must be in order to explain its importance. Compiling and communicating metrics is a requirement for HR strategists.
So what HR metrics should you track?
There are numerous HR publications that describe a litany of different mathematical equations that analyze everything from labor costs and employee characteristics to the ubiquitous turnover percentages. You'll find as many as three dozen ways of describing and calculating turnover.
Yet, what leaders really want to know about turnover is not the percentages, but if the most productive people in the most important positions are staying in comparison to less productive people or in comparison to those in less vital positions. That's it.
Isn't 20% turnover good if the new performance appraisal system successfully weeds out the low performers? Does 60% turnover matter in the retail industry if the company is profitable and that profitability is sustainable?
The lesson here is that particular metrics aren't good or bad, only the context makes them so. This is why the only metrics that matter are the ones that matter to your company-those that help leaders make decisions about how to be more successful.
5 tips for developing and managing HR metrics
Here are five tips that you can use to help you take a strategic, yet practical first step at developing and managing metrics:
1. Know and show why an HR metric matters
The first things to know are why you're keeping track of a metric and why it's important. Here, it's good to remember the caution attributed to Albert Einstein: "Not everything that can be counted counts, and not everything that counts can be counted."
If a metric's connection to a business priority is not apparent, don't track it.
2. Keep it simple
Another Einstein quote is applicable here as well: "You do not really understand something unless you can explain it to your grandmother."
If the metric is not simple, clear, and easily gathered and calculated, experience tells us that it will not be used. Sophisticated calculations that take a month to gather and analyze are not understood and therefore are not valuable.
3. Some for me, some for my manager
As a CHRO, I need to know more about the benefits budget and training expenses than the CEO does. He or she is more interested in the impact of what is spent and its return on the investment.
The yield ratio of where the best candidates come from is important to me, but the executive team cares more about the quality of hires.
Therefore, there is a need for me to track some metrics to manage the efficiency and effectives of HR matters, and there are others that I gather and report for other executives.
4. Connect HR metrics to business metrics
Since HR doesn't exist in a vacuum, HR metrics should be connected to strategic objectives.
The best practice is to marry-up HR metrics with other business data to show the impact of HR activities.
Combining recruiting source and appraisal scores to show that the hires from the local community college outperform their university counterparts on the job is insightful. As is data that shows that productivity actually decreased after an across the board 3% pay increase in contrast to when a merit-based raise was given.
5. Promote, communicate and share metrics widely
In an earlier blog post we talked about the ambassadorial role of the CHRO. Promoting the HR function by publicizing metrics that demonstrate a positive impact of people on the bottom line is an example when a little braggadocio helps to win HR some favor.
Metrics don't need to be complicated, sophisticated, or math
Instead they need to be simple, clear, and connected to the organization's priorities.
Simple ratios and correlations are enough. The key is that these ratios (revenue/professional staff) and correlations (higher employee satisfaction increases customer satisfaction) must be connected to the business of the business and should be presented in the proper context as to show the strategic impact of what is being measured.
If you follow these five principles, your HR metrics will be as good as they are strategic.
Your turn: What tips do you have for defining, tracking and communicating metrics that demonstrate HR's strategic importance?