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Running head: HUMAN RESOURCES METRICS AND ORGANIZATIONAL SUCCESS 1

Human Resources Metrics and Organizational Success

Kayla Conklin

Kristin Massicot

Michael Wiles

McDaniel College

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HUMAN RESOURCES METRICS AND ORGANIZATIONAL SUCCESS

Abstract

The following is an analysis of human resource management metrics and their importance to the

strategic planning of organizations. Arguments are made regarding human resources departments as

foundational members in the workplace, capable of providing catalysts for change within

organizations through the use of metrics. Employee turnover, and the related financial cost to

organizations, is reviewed through the use of basic HR metrics and personal work experience.

Additionally, a case study of HR metrics at McDaniel College examines the percentage of retirees in

the workplace, and the resulting need for a formal succession plan. The paper aims to showcase the

human resources field as one broadening its capabilities and earning its proper seat at the corporate

table.

Keywords: human resource metrics, implications for change, employee turnover, succession

planning

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HUMAN RESOURCES METRICS AND ORGANIZATIONAL SUCCESS

Introduction and Overview

Human resources management practitioners want to make known to the global business

community something that has long been known within their individual field: theirs is more than an

administrative field, and indeed has the great potential to drive business forward. Although often

regarded as a business cost center unrelated to revenue generation, proper management of human

resource capital—including in no small part a thorough understanding of an organization’s personnel

(and related) capacities—can mean the difference between industrial success and failure. The

challenge—for all members of the corporate environment, regardless of field—is understanding how

human resources management supports strategic organizational direction and how that support can be

best utilized.

The use of human resources metrics—tools comprised of, according to L. Byars and L. Rue,

“any set of quantitate measures used to access workforce performance”—can accomplish this

objective (Byars & Rue, 2011, p. 12). By developing metrics that illustrate the relationship between

an organization’s personnel and their guiding objectives, human resources management practitioners

can demonstrative the value of their field and why the practitioners themselves must have “a seat at

the table” when guiding organizational change is being developed and executed. However, research

shows that these analytical metrics must be carefully established with organization-specific utility

(and implications) in mind in order to be truly valuable and provide data upon which actionable

measures can be built.

G. Davidson and E. Newman outline the core of this goal succinctly: “HR must strive to

become ever more relevant to an organization's operations” (2006, p. 28). In practice, however, how

human resources management can fulfill this objective is somewhat more complicated. As B.

Tootell, M. Blackler, P. Toulson, and P. Dewe (2009) observe: “While realizing that HRM should

take on a more strategic role, it is still considered to be somewhat ‘fuzzy’ because it deals with the

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soft side of business, not accountable like other functional business areas” (p. 376). “The high bar

for HR,” concurs Steve Earle, publisher of staffing.com and Recruiting Metrics & Performance

Benchmark Report, “is to establish the relationship, to make the connection, to show what you do

better for the company” (Overman, 2008, para. 26). Earle’s viewpoint on the subject suggests that

the change needed to enforce human resources management’s perception as a strategic entity is

analogous to a change undertaken by another critical business sector, and it is here one begins to see

the road ahead. Earle draws a parallel to the accounting sector: “It went from keeping ledgers; it

made a big leap and became finance. Accountants entered a different arena. It didn’t happen

overnight, but today you won’t find [a company’s top financial person] who’s not in the C-suite”

(Overman, 2008, para. 27). B. Roberts sees a similar connection, and observes—perhaps—where

human resources management is currently falling short of its goal to be a strategic business partner.

In quoting John Boudreau of the University of Southern California’s (USC) Marshall School of

Business and Center for Effective Organizations, Roberts posits:

Business leaders tell me it is rare that they have an HR leader who helps them think better

about people the way the CFO helps them think about finance. . . . Business leaders generally

think HR does a great job with the portal, the systems, hiring and training. But that is all

reactive around services. We’re still in the service paradigm. (2009, para. 7)

What, then, is needed to move the field of human resources management forward, to ensure

that the goal of being valued as a strategic business partner is achieved? E. Krell (2011), in quoting

Mark Huselid and Brian Becker’s 64 Thought Leaders Explore the Critical HR Issues of Today and

Tomorrow, encourages human resources professionals to cultivate useful metrics, and thereby

develop a “competency to recognize the appropriate measures, and the appropriate analysis, for the

strategic questions confronting them” (para. 12). “Useful” is the operative term here, agrees Roberts,

who again references Boudreau—himself a metrics thought leader—who states: “HR has made

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progress using dashboards and scorecards, but has hit a wall that keeps it from using workforce

analytics to determine strategic impact” (2009, para. 5).

Although “usefulness” is largely a subjective proposition, the subjectivity needn’t be a barrier

to acquiring and developing sustainable metrics. At it’s most basic, writes D. Moss (2011):

Building credibility as a business leader requires that HR create credible and consistent

measurements that are relevant to the specific needs of the organization and that are

supported by reliable data that can be replicated so that the impact of human capital

management can be charted over time. (para. 6)

Moreover, and to the point of embracing the subjective nature of developing useful metrics, the

successful development of metrics requires human resources managers to analyze what is important

to their organization, where deficiencies exist, and where improvements can be made. Writes

Roberts:

After years spent acquiring and organizing gigabytes of data about the workforce, HR’s

challenge is to provide business leaders with actionable information that helps them make

decisions about people with the same kind of rigor, logic, and facts they use to make

decisions about investments, marketing strategies, and new products. (2009, para. 1)

“Most HR professionals,” observes S. Bates, “are stuck in second gear in their use of human capital

metrics. They need to rev up their use of numbers to analyze not just what the organization has done

but also what it should do to improve” (2011, para. 1). Moreover, it is of critical importance that the

results and nature of human resources management metrics translate to all members of the intended

audience within an organization, least their value be lost in translation. As Earle observes, “There

are increasingly sophisticated metrics and more of them, but when you walk metrics out of HR to

other offices, they become electronic telephone books. The useful information never goes into

business planning” (Overman, 2008, para. 4).

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To combat these issues, Davidson and Newman (2006) suggest beginning the development of

useful human resources management metrics by considering the following questions:

• How do we measure our success in HR?

• What information do we believe would help in making decisions?

• What information would help us to reach our goals or do our jobs better?

• How can we demonstrate our success to others?

• What are HR's greatest challenges?” (p. 28).

“It is these types of questions,” write Davidson and Newman, “that get to the heart of what makes a

performance measure meaningful: accurate, timely data that enable informed decision making and

that demonstrate effort” (2006, p. 28).

In illustrating how human resources professionals can “rev up” their strategic influence in the

workplace and better serve a given organization, the following study investigates how two different

human resources professionals—one in the sales industry, the other in higher education—utilized

human resources management metrics to uncover and present constructive, strategic change to their

organizations.

HRM Metrics at Sales Focus Inc.

Organizations that use human resources management metrics typically are concerned with

common issues such as retention, training and development, recruiting, and employee turnover. For

the purposes of this paper, employee turnover was examined in relation to human resources

management metrics. When organizations want to analyze their employee turnover, some typical

indicators include “cost per hire,” “turnover cost,” “turnover rate,” and “time to fill.”

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“Cost per hire” ranges from the cost of advertising, paying employees for referrals, agency

fees, and the salary and benefits of recruiters who work for the organization (Raskauskas, 2011).

“Turnover cost” metrics include the amount an organization spends for termination, new hire, and

vacancy duration (Raskauskas, 2011). “Turnover rate” is simply how fast employees leave an

organization after their start date, and “time to fill” is the length of time between a job opening and

when a new hire starts. All of these metrics, when related to turnover, can provide organizations

with the data needed to help create strategic planning aimed at reducing company cost, decreasing

the amount of turnover, and hopefully increasing tenure within the company.

A personal experience in the workplace was examined in the context of employee turnover.

Working in the human resources department at Sales Focus, Inc. in Marriottsville, MD, it became

apparent that turnover was a typical occurrence. Curiosity in terms of the rapidity of turnover within

this company sparked the use of basic human resources management metrics to determine a turnover

rate, and the average number of days a person was employed. Turnover was calculated by taking the

number of terminations during a period, and dividing by the average number of employees on payroll

for the same period (Raskauskas, 2011). Then, this number was multiplied by 100 in order to

determine a percentage. Sales Focus, Inc. had 33 terminations, which was divided by 148 employees

on the payroll. Once this was multiplied by 100, it revealed a 22% rate of turnover for the company.

It should be noted that this data was based solely on the weeks comprising the months of February

and March in the year 2012. According to the Bureau of National Affairs, the average annual

turnover rate is about 14.4% (Mushrush, 2002). Low turnover is generally under 10%, while high

turnover is defined as greater than 20% (Spirer, 2012). From this data, it is apparent that Sales

Focus, Inc. has a turnover rate well above the national average, and therefore, said rate would be

considered high. However, there are various constraints that could be affecting the percentage of

turnover within the company, particularly the limited amount of data examined. Regardless, it does

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seem that the company is turning over employees quickly, and examining this finding is still useful in

terms of organizational structure.

Table 1 and Table 2 below show the terminations for the months of February and March

2012, which were used to determine the average number of days an employee worked for Sales

Focus, Inc. During this time period, there were 33 terminations within the organization. Those 33

terminated employees collectively worked 1,637 days during their employment with the

organization. The number of days worked was based on a five-day, Monday through Friday work

schedule. This data revealed a 50-day average. A 50-day employment average means that a typical

employee stays with the company for less than two months. That is a significantly short time period

when other factors, such as the cost of new hire and turnover, are directly influenced by every

termination. Again, it should be noted that this data is based on only two months; an examination

over the course of an entire year would likely yield data of even greater significance.

Table 1.

February 2012 Terminations at Sales Focus Inc. (No. of Days Worked based on 5 day schedule, Mon.-Fri.) 

  Start Date Term Date No. of Days worked1 8/22/2011 2/1/2012 1182 1/2/2012 2/6/2012 263 1/2/2012 2/8/2012 284 3/14/2011 2/8/2012 2385 8/5/2011 2/13/2012 1376 1/23/2012 2/14/2012 177 2/13/2012 2/22/2012 88 9/26/2011 2/22/2012 1089 1/16/2012 2/22/2012 28

10 8/22/2011 2/24/2012 13511 2/23/2012 2/24/2012 112 1/30/2012 2/28/2012 2213 1/30/2012 2/28/2012 2214 7/28/2011 2/28/2012 14915 10/26/2011 2/29/2012 9016 1/23/2012 2/29/2012 28

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Table 2.

March 2012 Terminations at Sales Focus Inc. (No. of Days Worked based on 5 day schedule, Mon.-Fri.)  

  Start Date Term Date No. of Days worked1 1/30/2012 3/2/2012 42 2/6/2012 3/2/2012 203 9/6/2011 3/2/2012 1294 2/27/2012 3/1/2012 45 3/6/2012 3/7/2012 16 2/13/2012 3/9/2012 207 10/20/2011 3/2/2012 878 3/7/2012 3/8/2012 19 10/31/2011 3/12/2012 96

10 2/22/2012 3/6/2012 1011 2/27/2012 3/15/2012 1412 1/16/2012 3/14/2012 4313 2/21/2012 3/14/2012 1514 2/21/2012 3/19/2012 2015 3/19/2012 3/20/2012 116 3/5/2012 3/20/2012 1217 3/12/2012 3/16/2012 5

Turnover costs can vary greatly from organization to organization. For example, “cost” is

dependent upon both how much an organization spends on recruiting a new employee and how much

is spent to train said employee once they are hired. A typical estimate of turnover cost is one-third of

the employee’s salary (Mushrush, 2002). Willis Mushrush stated, “At minimum wage, the cost to

replace an employee is estimated at $3,700” (Mushrush, 2002). It is clear that companies like Sales

Focus, Inc. are likely spending a significant amount of money to replace their terminations,

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especially since the majority of their employees are salaried well above minimum wage. This

realization sparked an analysis of the causes of turnover, and their implications for the organization.

When examining turnover, it is important to keep in mind that turnover is a normal part of

every organization. It would be impossible—and undesirable—to completely eliminate turnover

within an organization. However, when turnover rates are significantly high, trying to determine

potential causes and creating related retention strategies are important.

A common cause of turnover that directly related to Sales Focus, Inc. was that the company

often did not select a proper candidate for a given position. The selection process at Sales Focus,

Inc., like many direct sales organizations, is based mostly on headcount rather than qualifications.

The pressure to quickly get a position filled results in the wrong people being selected for a position.

This seems to defeat the purpose of hiring a candidate and adds to termination costs. If they are not

fit for the position, their likelihood of success is low. Poor selection could be the result of many of

the terminations at Sales Focus, Inc., as Table 2 shows several employees working 12 days or less.

At Sales Focus, Inc., potential new hires are given a personality test to determine if they will

be successful as a sales representative. Personality tests are becoming increasingly popular in the

selection process among organizations. A study done by Michigan State University shows that using

a personality test increases the likelihood of success for a candidate by 75% (Rainmaker Group,

2012). For the best results, personality tests are supposed to be compared to a benchmark—or

baseline—relative to the position for which the candidate is being considered.

Countless times at Sales Focus, Inc., prospective candidates score “fair,” “poor,” and even

“very poor,” yet were still selected for hire. When asked the purpose of the test in light of these

hiring decisions, the recruiting department stated that managers could train sales reps in the areas in

which they faltered on the test. It is hard to grasp this concept, considering that the results are based

on concrete (and ostensibly unchangeable) characteristics of one’s personality. For example, if

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someone naturally is not assertive and therefore scores “low” on this personality trait, it would be

hard to “train” them to be a better sales representative. It is also important to keep in mind that

personality tests are subjective, and that employees can easily manipulate them to produce the results

they want. This is where the benchmark, discussed by Michigan State University, aids in eliminating

some of the bias. Yet, Sales Focus, Inc. does not utilize a benchmark. The organization should

determine how effective the sales test is in predicting the success of a candidate. It seems that even

when the scores are low, candidates are hired; so what is the goal of the test? Is this test really being

used correctly? If Sales Focus, Inc. cannot determine the effectiveness of the test, they may want to

consider eliminating it from the selection process, as it costs the company a large amount in

outsourcing.

Another potential cause for turnover, particularly true in direct sales organizations, is the

amount of expectation put on the new hire (Robertson). At Sales Focus, Inc., a new sales

representative has to meet a determined quota within two weeks of employment; otherwise, they are

terminated. Two weeks is not a significant amount of time to become accustomed to a new position,

nor does it allow for much training time. Both of these factors could cause high stress for a new

candidate who quickly resigns, or insufficient time may cause an employee not to reach quota within

two weeks. Sales Focus, Inc. would benefit from reading through past exit interviews to gather

information on why employees left the company. They may find that the company is lacking in

proper training and good communication from managers. They may also find that their sales

goals/quotas are unrealistic. Whatever the reason, what is uncovered through an examination of

previous exit interviews would give the company a basis for any changes needed to keep employees

satisfied and therefore employed longer.

To lower turnover, companies should also review how employee-oriented they strive to be. It

has been shown that organizations, which encourage open communication and input from employees,

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tend to report lower turnover rates (Musrush, 2002). Employees feel appreciated, and tend to be

more respectful and loyal to their employer when organizations make efforts to create “open-door”

policies (Mushrush, 2002). Sales Focus, Inc. could certainly improve in this area. The organization

does have a communications department, who could develop a survey for sales representatives, and it

could be administered quarterly. This would allow sales representatives to anonymously voice any

concerns or ideas they had for Sales Focus, Inc. Surveys would give employees a chance to give

input, creating a feeling of worth and appreciation. The communications department can use the

surveys to make organizational changes to reflect the needs of the employees. Creating an “open-

door” policy between sales represenatives and managers could also give the organization input to any

structural changes as they arise, as well as give the reps a deeper connection to their employer.

High turnover rates within an organization should be a sign that employees are unhappy in

some aspect of their work. An organization cannot simply ignore high turnover rates, especially if

some of the causes have changeable aspects. While the task of determining the causes of high

turnover for a given organization may be difficult, it is essential to the overall success of the

business. Finding causes can lead to catalysts for change, which in turn may reduce an

organization’s rate of turnover.

HRM Metrics at McDaniel College

McDaniel College (“the College”) was established in 1867 as Western Maryland College.

The College has 412 full-time employees consisting of faculty and staff. There are 15 part-time

employees and approximately 300 adjunct professors. The Office of Human Resources consists of a

departmental secretary, benefits and employment manager, and the director. Due to the small staff,

human resources management metrics have not been utilized in decision making at the College.

Although there have been many significant changes to this liberal arts institution throughout

the years, the biggest changes occurred within the last two years. At the inauguration of the 11th

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president of the College, it became clear that President Dr. Roger Casey had plans for McDaniel

College. His inauguration speech discussed “McDaniel Swagger,” the new “McDaniel Plan,”

branding, staffing, image projection, and statistics. It was clear from his speeches and conversations

that he values data. He expects information to be easily accessible, accurate, and available at a

moment’s notice. Dr. Casey makes decisions based on figures. Prior to his first campus visit, he

requested many reports from human resources. He requested employee ages, length of service,

counts for each department, and salary reports. The change of McDaniel’s president also marked a

change for the College’s human resources department. The use of human resources management

metrics became a critical focus of the department. “If HR professionals don’t measure their

function’s effectiveness, someone else will” (Robb, 2011, p. 110).

The Office of Human Resources assessed the types of metrics being used and determined the

types of metrics possibly needed in the future. “Senior executives make decisions based on facts, not

feelings or opinions. When selecting metrics to track and analyze, HR leaders use two categories of

data: standard HR statistics, such as head count and time-to-fill, and workforce analytics that show

how workforce characteristics affect production, income and profitability” (Robb, 2011, p. 110).

The College’s human resources department utilized Informer software daily to run

employment reports. Informer pulls data out of Colleague, the human resources database. Informer

allowed the small human resources staff to produce the information requested by the president in

fairly short order; however, Dr. Casey’s expectations were well above the current level of production.

The benefits and employment manager, under the supervision of the director of human resources,

needed to utilize human resources management metrics in order to provide the College’s leadership

the information they need to make informed decisions.

The human resources department began using these metrics to complete information for The

Chronicle’s Great Colleges List. This task became an excellent way for the College’s human

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resources department to identify trends. The report requested average salaries, employee turnover,

employee counts, and gender. As the human resources department looked for ways to improve

service to the leadership, they recognized the need to maintain such information gathering on an

ongoing basis, and used it for other purposes as well.

The Chronicle’s report identified that the turnover rate has increased. McDaniel College

does not have a formal succession plan in place. In order to demonstrate the need for such a plan,

metrics was used to determine the amount of employees who are currently eligible to retire. At

McDaniel College, an employee must have worked fulltime for 10 years and be at least 60 years of

age, or have worked 20 years and be at least 55 years of age. After analyzing the information, it was

determined that 79 out of 416 full-time employees are eligible to retire immediately. Knowing that

19% of the workforce may potentially need to be replaced at any time is an extremely effective way

to quantify the need for formal succession planning. The turnover costs involved made a strong case

for having plans in place for the positions that will ultimately need to be filled in the future.

Top positions at McDaniel College are typically filled by outside candidates. The employees

who worked under a given leader, we noted, were often lacking the training and experience required

to fill the position. Using human resources management metrics, the cost per hire can be identified,

and thereby the cost of providing training and mentoring programs within the College community

can be justified. It will take a lot more conversation backed by solid metrics to persuade the

leadership that this is a potential disaster that can be avoided with proper planning and an investment

in training.

Utilizing human resources management metrics, according to Barbara Butterfield: provides

business intelligence that tells stories that drive investment and action. It supports executive

decision-making and measures human resources value contribution against institutional

effectiveness outcomes. Those institutions focusing attention on transformative investment

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and action are measuring current aspects of climate, engagement and commitment, and are

setting their goals for future attraction, retention and success accordingly. . . .What gets

measured, gets done. (2007, p.11)

The decision on what to measure is of great importance. Ronald Adler, president and CEO of

Laurden Associates, states that there are two main questions that must be considered: “Are HR

activities and employment practices aligned with your organization’s strategic and business goals and

objectives? How do human resources impact these objectives?” (Business and Legal Resources,

2011).

According to Butterfield:

Human resources can provide business intelligence and decision-support data resulting from

investment in workforce planning; contribution to quality hiring and retention in targeted

disciplines, competency, skills and leadership capacity; tracking important faculty, staff and

student ratios and costs demonstrating investment in instructional and administrative support

over time; assisting grant administrators and fundraisers in refining or redesigning their

processes; and more, thus resulting in more rewarding work and greater faculty and investor

satisfaction. (2007, p.9)

Although a change in leadership can be challenging at times, in this case it provided the

human resources department an opportunity to stretch and grow. The following figures (Figure 1 and

Figure 2) illustrate the areas that the College needs to improve. With ultimate goal of participating in

The Chronicle’s Great Colleges to Work For being public recognition, the metric used in the

information gathering is even more valuable.

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Figure 1.

Figure 2.

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Based on the presented findings in these figures, the leadership of McDaniel College needs to

work on many issues. Coupling the results of the survey and the human resources management

metrics analysis, Human Resources can add value to strategic planning and gain access to a “seat at

the table.”

Conclusion

Having reviewed the discoveries presented herein, human resources management metrics can

be viewed as the effective method of demonstrating—and addressing—organizational needs

practitioners have always known them to be. Data from these metrics can be used as a supplement to

verbal statements about the needs of the organization to emphasize—or describe—their importance.

When organizations are able to visualize the impact their human resources capital has on their

company—and thereby see how proper management of said capital is critical to long-term success—

only then are companies truly able to make constructive and sustainable strategic plans and changes.

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