HR: Value or Expense? Measuring Future Business Relationships

Presentation to the 2001 HRINZ Conference of the Results of the National Baseline Survey on

Valuing Human Resourcesby

Paul Toulson (College of Business, Massey University)

and

Philip Dewe (Birkbeck College, University of London)

Introduction

   Measuring HR in terms of business metric

• The subjectivity myth

   Marginalisation of HR

   The implicit realisation that value in 21st Century is created by and through people

 

I know that you are not going to believe this, but..

State of Play

• Link to competitive advantage through employee commitment and capability.

• Recognition of importance of human capital.• The importance of measurement and approaches.• Human resource accounting:

Knowledge-Based Assets,

Value-Based Management.

• Other measurement approaches.• Where are we at in New Zealand?

Aims of Study

• What New Zealand organisations are doing to measure HR results?

• How critical do they consider HR measurement to their management and success?

The Samplejob title

Line Management

Accting/Finance Mana

HR Management34%

21%

45%

gement

Top Five Principal Reasons for the

Importance of Measuring Human Resources • HR should be accountable (89.6%) • People skills and knowledge most important source of sustained competitive

advantage (84.7%) • Understanding the value of people focuses us on future human resource needs.

(76.7%) • Measurement of human resources gives management needed information to

support business strategies (74.3%) • Enables management to make better informed decisions. (72.2%)  

Factor Analysis of the Sixteen Statements About The Importance Of Measuring Human Resources

• Reason 1 (Measurement Reflects The Strategic And Competitive Importance of Human Resources)

• Reason 2 (To achieve credibility human resource management must be expressed in financial terms)

There are two principal clusters

Top Five Reasons Why Organizations Do Not Measure Human Resources

        Current HR measures lack precision (58.8%)

 

        Current HR measures are not widely accepted (50.56%)

 

        Current HR measures lack reliability (40.4%)

 

        Insufficient time to develop appropriate HR measures (40.1%)

 

        Current HR measures lack validity (38.5%)

Three Principal Reasons Given To Justify Why Organizations Do Not measure Human Resources

• Reason 1 (Human resource measures lack precision)

• Reason 2 (Human resource measures are too difficult)

• Reason 3 (Human resource people lack expertise)

Perceptions of Importance of Measurement at Different Levels in the Organisation

• Human Resource Management (50.0%)• The CEO (44.4%) • Partners (33.2%)• Senior Management (32.8%)• The Board of Directors (25.8%) • Line Managers (21.1%) • Financial Management (17.9%) 

The Most Frequently Used HR Measures

• Accident frequency rate (60.3%)

• Client satisfaction surveys (60.1%)

• Absenteeism rates (56.3%)

• Training and education costs (56.0%)

• Cost of People (53.9% )• Competencies (53.2% )

From some 32 measures, we found that the sixmost frequently used ones were…

The Most Infrequently Used HR Measures

  • Training costs (4.9%)• ROI in human capital

(9.0%)• Value added per

employee (9.3%)• Time to fill job (11.9%)• Return on training

(11.9%)• Seniority (14.4%)

…while the sixmost infrequentlyused measureswere..

The frequency with which the top 6 measures are taken expressed as a percentage

Measure Daily Weekly Monthly Quarterly Annually

        Accident frequency rate 12.1 9.2 53.8 13.4 11.5

        Client satisfaction surveys 4.2 3.2 15.4 26.4 50.8

        Absenteeism rate 12.1 16.5 43.4 18.2 9.8

 Training and educational costs

.3 1.3 46.7 18.8 32.9

        Cost of people 3.4 6.2 53.8 11.7 24.8

        Competencies 8.5 2.8 7.1 23.8 57.7

The Measures That Should Be Used But Currently Are Not

• Return on training (33.6%)

• ROI in human capital (31.3%)

• Turnover costs (29.95)• Cost per hire (28.7%)• Innovation (28.4%)• Cost-benefit analysis

(28.2%)

This is whatwe should be measuring…!

Importance of the Different HR Measures by Your Industry Sector

• Client satisfaction surveys (52.1%)

• Competencies (42.9%)

• Leadership (41.2%)

• Job satisfaction (40.1%)

• Accident frequency rate (35.1%)

The top five HR measures thought to be important by the industry sectors of the respondents were…

Business and Financial Services

Community, Social and Personal Services

 

Manufacturing

Client satisfaction

surveys (57.6%) Client satisfaction surveys (54.9%)

Accident frequency rate (67.6%)

Competencies (52.3%) Competencies (41.5%) Client satisfaction surveys (38.0%)

Leadership (48.4%) Learning (40.2%) Leadership (36.6%)

Job satisfaction (46.5%) Leadership (38.0%) Absenteeism (32.4%)

Learning (41.9%) Job satisfaction (37.8%)

 

Competencies (31.0%)

Factor Analysis of How Important The Different Measures Of Human Resources Are Considered To

Be

 • Group 1 (Human

Resource Costs/Information)

• Group 2 (Return on Investment)

• Group 3 (Individual attributes/potential)

3 Groups of HR Measures

Are there Differences Between Human Resource Management, Accounting/Finance Management and Line Management in Terms of

Issues Surrounding Human Resource Measurement?

On the importance of measuring human resources

HR managers and line managers are more likely to see the importance of measuring human resources than are accounting/finance managers

On reasons for measuring human resources

 • HR managers and line managers are more likely to agree that measurement reflects the strategic and competitive importance than are accounting/finance managers

• HR managers are more likely to agree that to achieve credibility human resource management must be expressed in financial terms than are line or accounting/finance managers

On why organizations do not measure

human resources

• HR managers are less likely to agree that human resource measures lack precision and thus a reason for not measuring them than are either line or accounting/finance managers

• Accounting/finance managers are more likely to agree that human resource people lack expertise when it comes to measuring human resources than are line managers

On the Importance of different

measures of human resources • HR managers are more likely to see the importance of

measuring human resource costs/information than are either accounting/finance or line managers

• Accounting/finance managers are less likely to see the importance of measuring individual attributes/potential than are either human resource managers or line managers

Conclusion

So what can we conclude from these results?

Questions 

• What are the implications of these results for you as HR practitioners?

• What do you think should be measured in HR, and what should be done with the information once collected?