Post on 09-May-2015
Measuring HR’s Return on Investment
A Society for Human Resource Management Presentation
© 2008 SHRM
Cake Baking
Measuring HR’s Return on Investment
To measure or not to measure?!
Measuring HR’s Return on Investment
Potential vs. Actual Use
95%
5%
BrainCapacity
Actual Use
Measuring HR’s Return on Investment
Source of value has shifted from tangible to intangible assets.
1982 and 1992 - The Brookings Institution analysis of S&P500 companies. 2002 - Kaplan & Norton
3862
85
6238
15
0
20
40
60
80
100
1982 1992 2002
Intangible Assets Tangible Assets In 1982, intangible assets comprised 38% of a company’s market value.
By 2002, that number soared to 85%!
Measuring HR’s Return on Investment
Value vs. Quality Measurement
85 82 79
67
52
29
61
41
16 16
0
10
20
30
40
50
60
70
80
90
% highly value information
% willing to bet their jobs onquality of info
Financial Performance
Employee Performance
Operating Efficiency
Perc
ent o
f Exe
cutiv
es
Customer Satisfaction
Innovation/Change
Measuring HR’s Return on Investment
Quality of Measures
Financial Performance
Employee Performance
Operating Efficiency
Perc
ent o
f Exe
cutiv
es
92
63
43
17
88
69
42
27
0
10
20
30
40
50
60
70
80
90
100
Believe meaures are clearly defined in eachperformance area
Report measures are updated and reviewed atleast semi-annually
Customer Satisfaction
Measuring HR’s Return on Investment
Use of Measures
Financial Performance
Employee Performance
Operating Efficiency
Perc
ent r
epor
ting
mea
sure
s
98
8576
57
80
62
43
29
94
54
3726
0
20
40
60
80
100
120
Included in regular mgmt reviews
Used to drive org. change in each area
Linked to compensation
Customer Satisfaction
Measuring HR’s Return on Investment
HR involvement in strategic activities
Of the following activities, to which are your HR department most frequently sought to contribute?
• Recruit and retain – 77%• Health care costs – 60%• Keep costs down – 49%• Human capital strategy – 22%• Head strategic planning – 16.5%• Measure business drivers – 16.5%
Source: SHRM Weekly Survey, March 2004
Measuring HR’s Return on Investment
Measurement Philosophy – Old vs. New
The fundamental distinction between old and new measurement philosophies is “an understanding of the contribution of the workforce versus a focus on understanding the cost of the workforce.
Source: The Workforce Scorecard: Managing Human Capital to Execute Strategy
Measuring HR’s Return on Investment
7 principles for effective workforce metrics
1. Recognize and work to change outdated management perceptions of workforce value and HR measurements.
Measuring HR’s Return on Investment
7 principles for effective workforce metrics
1. Recognize and work to change outdated management perceptions of workforce value and HR measurements.
2. Metrics must be dependent upon the alignment of the workforce with the organization’s overall business strategies.
Measuring HR’s Return on Investment
On Strategy…
Strategy is the result of a unique set of organizational activities that bring the value proposition to the customer.
Measuring HR’s Return on Investment
Strategy development process
HR Strategies
Workforce Strategies
Business Strategies
Process starts at the bottom. Business strategies are the foundation.
Source of concept: Huselid, Becker & Beatty
Measuring HR’s Return on Investment
Organizational value creation process
HR Strategies
Workforce Strategies
Business Strategies
Process starts at the top. HR strategies drive value creation for workforce and business strategies.
Source of concept: Huselid, Becker & Beatty
Measuring HR’s Return on Investment
Organizational value creation process
Value Creation Process
HR practices
HR mgmt. systems
HR competencies
Leadership/ workforce behaviors
Workforce culture/ mind-set
Workforce competencies
Financial success
Customer success
Operational success
Measuring HR’s Return on Investment
Percent of Organizational Operating Budget
1%
70%
0%
20%
40%
60%
80%
HR Workforce
HRWorkforce
Measuring HR’s Return on Investment
SYSCO: Metrics Show that Units With High Employee Satisfaction Perform Better Than Units with Lower Satisfaction.
0
25
50
75
100
EmployeeSatisfaction
UnitPerformance
Unit Cust.Feedback
Unit A
Unit B
Unit C
These percentages are sample, not actual
results.
Measuring HR’s Return on Investment
7 principles for effective workforce metrics
1. Recognize and work to change outdated management perceptions of workforce value and HR measurements.
2. Metrics must be dependent upon the alignment of the workforce with the organization’s overall business strategies.
3. Workforce differentiation is key.
Measuring HR’s Return on Investment
Differentiation
When determining employee value relative to organizational strategy, not all things are created equal.
Measuring HR’s Return on Investment
Myth: More is better
Measuring HR’s Return on Investment
7 principles for effective workforce metrics
1. Recognize and work to change outdated management perceptions of workforce value and HR measurements.
2. Metrics must be dependent upon the alignment of the workforce with the organization’s overall business strategies.
3. Workforce differentiation is key.
4. Answer the right questions, not all the questions.
Measuring HR’s Return on Investment
• Customer complaints as a proportion of sales• Number of new product offerings unlike anything
sold by the competition• Percent of “A” customer retained• Percent of customers who believe their
issues/concerns are listened to and addressed• Public perception of organization as a market
leader• Quality of brand awareness
Sample Workforce Success Metrics
Source: The Workforce Scorecard: Managing Human Capital to Execute Strategy
Measuring HR’s Return on Investment
7 principles for effective workforce metrics
4. Answer the right questions, not all the questions.
5. Responsibility must be shared by HR and line management.
Measuring HR’s Return on Investment
Business and Workforce Strategy Roles
Source: The Workforce Scorecard: Managing Human Capital to Execute Strategy
Line ManagersWorkforce mind-setIdentify “A” positions/playersAssess “B” players with “A” potentialDevelopmental plans for “A” and “B” players“C” player exits
HR Function
Workforce differentiation practices such as:
• Selection• Development• Performance• Rewards• Communication
Workforce metrics
Measuring HR’s Return on Investment
7 principles for effective workforce metrics
5. Responsibility must be shared by HR and line management.
6. Take time to evaluate and adjust.
Measuring HR’s Return on Investment
7 principles for effective workforce metrics
5. Responsibility must be shared by HR and line management.
6. Take time to evaluate and adjust.
7. Metrics must be founded upon the rock of communication.
Measuring HR’s Return on Investment
Employee satisfaction/engagement 63%
Leadership 60%
Remuneration 59%
Productivity (revenue, profit) 53%
Competencies/training 50%
Turnover 50%
Recruitment 48%
Percent of HR execs who believe metrics in the following areas increased manager understanding of human capital’s connection to strategy.
Source: The Conference Board, Measuring More Than Efficiency. 2005, January.
Measuring HR’s Return on Investment
Source: The Conference Board’s “Measuring More Than Efficiency” 2005 study
Measurement reporting:
Report findings to senior leaders on a quarterly basis
63%
Report findings to senior leaders on a monthly basis
44%
Report findings to all business managers
19%
Measuring HR’s Return on Investment
Value of Measurement Management
Non-Measurement Managed Orgs.
Mea
sure
of S
ucce
ss
74
44
83
52
97
55
0
20
40
60
80
100
120Perceived as industry leader past 3 yrs
Financially ranked in top 1/3 of industry
Last major cultural or operationalchange judged successful
Measurement Managed Orgs.
Source: William Schiemann & Assoc.
Measuring HR’s Return on Investment
SHRM HR Measurements Forum www.shrm.org/metrics
Measuring HR’s Return on Investment
"Each problem has hidden in it an opportunity so powerful that it literally
dwarfs the problem.
The greatest success stories were created by people who recognized a
problem and turned it into an opportunity."
- Joseph Sugarman, Author and Innovator
Measuring HR’s Return on Investment
Thank-you
A Society for Human Resource Management Presentation
Measuring HR’s Return on Investment