Today I would like to talk about HR metrics – what is, I honestly believe, one of the most important but underdeveloped HR skills. Only very few companies, I have been consulting for in the recent years for example had an HR Balanced Scorcard. Fact is that most companies are not even in a position to measure basic HR reporting figures. Even some of the DAX companies only have a rough idea on how many people they employ. Topics like employee skills, job-profiles or similar are far off. Problem though is that if I don’t know the figure, I don’t know my performance, meaning I cannot improve it.
When having HR metrics discussions, it often leads into an IT discussion. For a long time this meant big fat ugly ERP – expensive, hard to implement and not very flexible… With today’s SaaS solutions the picture paints itself already very different. Especially solutions like SuccessFactors or Workday are a gold standard. Of course, also these SaaS solutions have their issues and difficulties when to implement, especially in Germany – but more about that later.
Ok, so why is an HR Balanced Scorecard so important? – To be a really strategic HR Function with having a consequent focus towards company goals an HR Balanced Scorecard is key. A Balanced Scorecard always has to be company and (HR) strategy specific. There is not “one-size-fits-all”, however the basics can be applied to any HR function. And this Balanced Scorecard help with two things: a) measuring the “right” things and b) making sure that HR improves these things.
Like every Balanced Scorecard, the HR Balanced Scorecard has to represent the performance of the entire HR function on company level. To achieve this, four quadrants should be covered:
- Financials
- Customer
- Innovation/ Learning
- Process
These represent the four views on HR.
Financials – first the most obvious. All companies are finance-triggered, and only when assessing HR against financial performance indicators, a real bottom-line impact of HR can be measured. Potential indicators are “HR expense ratio” or “staffing efficiency ratio”.
Customer – HR has always been and will always be a service function. HR should never just by itself decide which projects should be prioritized and which shouldn’t. This always has to be executed in close cooperation with HR’s customers and customer needs. Customer is the second most critical indicator! Example indicators are “new hire quality” or “% of critical workforce with workforce and succession planning in place”.
Innovation/ learning – closely aligned with customer, the topic of learning and innovation mainly focusses on workforce effectiveness and how to improve it. And how can HR best influence it? – through targeted training measures as well as targeted performance management. Example figures here are „% of critical capabilities in place/ increased“ or very important not only by itself, but also for innovation “diversity“
Process – last but not least. Process brings the inside-out perspective for HR. How does my HR function perform? Is it efficient? How do my processes run, where do I need to get better at, etc. This category plays the basis for all other three. If this one delivers poorly, the other three cannot be good either. Example figures are “time to fill”, “new hire pipeline”, etc.
HR should measure itself and its performance according to these four quadrants. On top-level and of course broken down to each HR employee. Each and every activity or project HR does should be visible in at least one of these quadrants.
However, all performance figures cumulate in the finance quadrant: Each and every figure has a financial impact. Lets take „time to fill“ as an example. This is a classic process figure. How long does it take from identification of an open position to get it filled? – expressed as financial figure: How much does it cost me to recruit someone into this position? And, which alternative costs occur because of having an open position? – an improvement of „time to fill“ has not only an impact on HR internal financial figures, but more importantly on business figures. Positive: A manager has to interview less candidates when the candidate quality improves; negative: a new recruiting system needs to get implemented. However, if I measure both, I can easily calculate a business case for my CFO to get the new recruiting system!
However, and this is something every salesman knows: Every employee that did not quit his/ her job is more valuable and less costly as every new employee – but more about that next time.
Chief HR Officer 