Creating Metrics for Senior Management

To be effective, HR leaders need to become an active part of the management decision-making process, not simply contributors to the expense of doing business. This means providing metrics in terms business leaders can understand.

"Historically, HR has grown up in a void of unaccountability," says Al Adamsen, founder and managing partner of People-Centered Strategies LLC in San Francisco. HR leaders "have not been held accountable for delivering metrics that show the value of their programs or investments."

But no more: Better tools for assembling workforce metrics, combined with tighter coordination between HR and operations, allow HR professionals to deliver meaningful business information.

HR professionals are "starting to deliver business value, clearly showing the connection between what they do and the outcomes of the business," says Nicholas Garbis, strategic workforce planning leader for GE Energy in Minneapolis.

Tools to UseHR professionals in many companies probably don't need to purchase additional software to create valid metrics. "A decade ago, if some clients looked for turnover rate by performance category, it could be a two-week project," says Haig Nalbantian, senior partner for Mercer in New York City. "Now, most large global organizations have that data" in real time.

The trick is knowing where to look and how to extract the data. Human resource information systems typically have reporting tools. Learning management, performance management and financial systems and tools are additional sources.

Step zero is data integrity and quality. Many organizations don't even know how many people are working there," says Rishi Agarwal, a partner in Deloitte's Human Capital Practice in Atlanta.

A lack of records is not the only potential problem. HR and payroll personnel may be operating on different ideas of who to count as an employee. There is an initial step of getting agreement on what counts as a valid measurement and then making sure the data match the definitions. "Figure out who is measuring what, how they are doing it and how to corral all the information," Garbis says. "Get everyone to follow this new approach or common definitions. It is a combination of business intelligence and change management."

Then data often need to be brought into a data warehouse to be analyzed and manipulated to gain insight. The challenge lies in getting all the data sources working together to gain a picture of what is happening and what will happen if certain actions are taken.

It may be possible to use tools that come with human resource information systems for data analysis. For example, embedded predictive analytics come with Oracle Fusion HCM and the Oracle Fusion Workforce Predictions module, and more than 600 HCM reports and 90 key performance indicators come with the SAP ERP and the SAP BusinessObjects Strategic Workforce Planning software.

Analysis products from companies such as Peoplefluent, SuccessFactors, HumanConcepts, KnowledgeAdvisors and others can aggregate data from multiple sources. Even common tools such as Excel can be used for data analysis.

But no tool replaces the value of human insight.

Don't Be Sidelined

If HR professionals don't measure their function's effectiveness, someone else will, Adamsen says, explaining that "If operations isn't getting the data they need from HR, they will build the capability they need, often working with finance. HR could be left on the sidelines."

Jennifer Triumph is compensation analyst for the Northern Indiana Region of the Franciscan Alliance, a group of 14 hospitals. In her region are five facilities with about 5,000 employees. Triumph, located in Hammond, Ind., faces the challenge of attracting and retaining employees from the higher-paying Chicago metropolitan area. She says data has become key to obtaining resources necessary to recruit and retain high-value talent.

For example, sometimes her team will propose new employee benefits such as discounted tickets or higher tuition reimbursement. "By showing that we are attracting and retaining high talent, and that employees like these benefits, we can keep these costly benefits," she says. "We can show that the cost of these benefits is less than the cost of losing the quantity of employees who would leave if you take away the benefits."

What to Measure

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.

"HR is the function, and workforce is the people," Garbis says. "On the HR side, you are aiming at optimization and impact; on the workforce side, it's about business results."

The raw data need to be translated into plans that advance business purposes. In deciding what to measure, include metrics that show actions taken to produce results, not just end results. "Don't look at just outcome metrics. The key is to get to the driver metrics," says Mercer's Nalbantian.

Metrics kept and reported on differ by organization, depending on culture and business needs.

At the Franciscan Alliance, "We need to present data that show our human capital strategy is effective and that we are acquiring, developing and deploying the proper talent," Triumph says.

Metrics she tracks include:

• Percentage of performance goals met or exceeded, which show whether the company is meeting the performance goals aligned with its mission.
• Percentage of employees rated at the top performance appraisal level who are paid above the average salary.
• Percentage of top-performing employees who resigned for compensation-related reasons.
• Turnover percentage of low-performing managers and employees within one year of receiving a low performance rating.
• Percentage of employees in any performance management program who improve at least one level within the year.
• The rate of involuntary turnover in key jobs. Tracking this metric provides the trend and shows whether actions are being effective in reducing the rate.
• The rate of involuntary turnover in key jobs. Tracking this metric provides the trend and shows whether actions are being effective in reducing the rate.

"A lot of people look at total employee turnover, but we look at key jobs or hot jobs and weight high performers heavily compared to average or poor performers," Triumph says.

If top performers are leaving, the organization may need to adjust compensation or benefits. If management is lacking, line managers may need training or may have too many direct reports. If poor performers are leaving, it could be that employees are not offered enough development assistance.

Triumph uses Halogen Software, but the canned reports don't always provide the data she needs. In addition to the metrics that come from Halogen, she runs reports on compensation and turnover that come with a PeopleSoft human resource information system. Sometimes, she uses the Halogen and PeopleSoft systems together.

The systems "communicate with each other and populate the user center," she says. "Then, through the performance reviews and other talent management processes that we use, we can build metrics off of those using the Halogen reports."

The real value comes in translating metrics into action. The raw data need to be translated into plans that advance business purposes.

"Analytics is the act of coupling metrics with experience and knowledge to develop insights with the express purpose of doing something with the insights," Garbis says. "Analytics requires people with specific talent for uncovering relationships and driving the right actions."

Story Time

It's up to HR professionals to interpret workforce data in a way that gives clarity and meaning to the business issues at hand.

"Execs will never walk away from a meeting with reams of data points," Nalbantian says. "They will always walk away from that meeting with a compelling and credible story that you have been able to make those data tell."

HR's metrics don't have to connect all the way to the bottom-line result. For example, in a retail setting, if HR professionals can show that a training program speeds up cashiers, others can extrapolate that to lower payroll, higher profits and customer retention. If HR can show that its actions lead to greater engagement, others can envision how this drives down the cost of hiring. But the presentation has to be done properly and, ideally, live.

"HR professionals may understand what we are trying to portray, but the executive team also needs to see what we see," says Triumph. When presenting to senior leaders, she often uses Halogen to run ad hoc reports on her desktop as needed to answer questions.

"There are some instances where we have to take time to re-analyze the data and bring it back, but the majority of the time we can revamp the reports on the fly," she says. When senior executives ask for specific data, she can create reports on the spot.

Triumph says HR leaders should present information quarterly so executives stay apprised of HR's value. But the most important meetings happen during the annual budget process, and impromptu meetings may be necessary to address situations such as an unanticipated increase in patient load.

"We can be called up at any time to give any type of metric, and it is great to have software systems that can provide rich data," Triumph says.

The Franciscan Alliance takes in patients without regard to ability to pay. Given the economic climate and increased demand for charity care, it is up to the HR department to find ways to get greater value out of existing staff. So, Triumph recently showed senior executives that it was more important than ever to attract and retain the best staff.

"The equation is that high performance equals better patient outcomes, which equals lower admittance costs, which equals higher profitability," she says. "We are a nonprofit, so our bottom line is always zero, but we still need to be profitable so we can expand our organization and provide better services."

The author is a California-based freelance writer who specializes in technology, engineering and business.