As it stands, the value of people is still not fully understood and reported on. With the economic climate and Government policy forcing budget cuts, redundancies remain the first cost cutting measure, often without an understanding of the true worth people bring to an organisation.
As the HR guru David Ulrich said in the Harvard Business Review in 1997, “HR should not be defined by what it does, but by what it delivers…results that enrich the organisation's value to customers, investors and employees”. These are wise words and as Ulrich states, it is vital for the HR function to move away from processing employees to providing a more strategic value to the organisation. This strategic approach can only be achieved through clear and accurate HR measurement, analysis and reporting.
The number of companies in the FTSE 250 with a HR Director on the main board remains low. If people are a company's most important asset then you would expect the person who was responsible for this to be sitting at the top table. If he or she isn't, then we can conclude that either people are not such an important asset after all or that the HR function is not taken as seriously as it should be. The latter is the most probable.
So, why is HR not taken as seriously as say, finance or operations? The answer lies in the fact that organisations are like machines. They suck in resources including land, labour, materials and finance and spit out products and services as efficiently as possible. To do this requires tangible financial, production, logistical, sales and marketing measures. HR measurement is far less tangible and so its value is not as easily recognised. And when organisations do recognise the value of measuring HR, there tends to be other barriers in the way of actually doing it such as the cost, time and importantly, the know-how of doing it and doing it well.
So, the HR function needs to be taken seriously. It then needs to earn its place at the top table by proving its strategic worth. Only then can HR effectively contribute towards an organisation's business objectives.
HR, and not finance, needs to own the measurement of people and deliver insight into how people add value to the organisation, in line with the organisation's goals. To achieve this, HR shouldn't try to measure and report on everything straight away as this can lead to dilution of the key metrics and ultimately, confusion. Initially focus on a number of key measurables and then steadily increase the number of reportable metrics. Ultimately, HR needs to be in the position to accurately and intelligibly answer questions such as: A good starting point is to measure that which has a productivity output measure attached to it and, where possible, this should be attached to the individual or to the team or group. It may be net revenue or margin per employee, cost per invoice processed, cost per completed project or whatever else can be attached to a quantifiable measure.
The return on investment (ROI) of a particular employee can also be calculated, providing valuable insight, especially when redundancies are inevitable. For example, the cost to hire, train and retain a person in sales can be measured again the amount of revenue they have generated within a particular time frame. Similarly the costs to employ and retain a marketing manager could be measured against revenue derived from marketing activity.
If investment into recruitment and staff development is to be retained, or even enhanced in order to meet performance goals, financial managers need to be persuaded in the language of comparisons and measurement. Execute a limited but focused range of effective metrics that can demonstrate the cause and effect of HR interventions such as training courses. For instance, HR can calculate and measure employee performance and development both before and after a training course e.g. has revenue per employee increased? Have customer satisfaction levels improved? Has productivity increased?
The analysis can also be used to more effectively target training needs, concentrating on training courses where they are most needed and which deliver the best return rather than spreading them thinly and ineffectually across the organisation.
With the cost of absenteeism to UK business amounting to £13.2 billion per annum in lost output according to the CBI, employee absence is a significant risk to an organisation's operations. Therefore, HR needs to ensure it can accurately and comprehensively measure absence levels (and the root causes of absence) and report on this information at board level. Any potential disruption to the business due to absenteeism can then be successfully managed and the root causes can be more effectively tackled. For example, if 70 percent of absence is due to musculoskeletal reasons, there is a case for the organisation to invest in improved working conditions and heath and safety advice tailored towards reducing musculoskeletal injuries.