Despite the single biggest expense and liability for any company being their people, Human Resources is difficult to measure accurately and in real-time. It is also the single largest competitive factor for a business. To be successful, HR leaders need to measure more than just work and cost. It is important to align employee engagement with other risk factors and be able to respond in real time. This allows companies to be preventative instead of reactive, which has a significant impact on the company’s value and ability to compete. They need to understand each business unit and team. They need to find the right talent that not only fills functional roles but also aligns with the company culture.
Companies may measure engagement or turnover, but a key business driver is the ability to improve predictability. That is where current HR metrics can fall short. HR leaders cannot just think they know what is working. They must be able to know precisely what works, how to measure it and prove the effectiveness of initiatives to leaders throughout the organization. Here are the steps to building value through data-driven HR:
Step 1 – Understanding Risk Versus Engagement – Providing Value From Human Resources
Although risk measures engagement, engagement cannot accurately identify risk. People may be engaged because they have a job that makes no performance demands or because the culture abets their dysfunctional behaviour. Risk mitigation encompasses how policies and procedures are created and implemented, with a greater impact on a company’s value and bottom line. Risk not only influences liability and D&O insurance premiums but has direct impact on performance and efficiency within an organization.
Issues such as potential lawsuits, insurance premiums and regulatory fines are just the tip of the iceberg. There are significant risks as well in retention and attraction of talent, productivity, and resources management. As a result, Human Resources should be treated like any other business function. HR needs to demonstrate that every dollar it spends has an impact on the organization. This includes:
- Compensation – metrics for productivity should be tied into compensation. This includes metrics around culture and assisting others to become better performers. As an example, a bonus of 5% could be tied into an increase in productivity of over 10%.
- Training – measure the correlation between productivity and training.
- Recruitment – measure how quickly new hires produce results at the high end of their performance scale and keep producing at increasing rates as they stay within the company.
- Technology – show the ‘before and after’ difference in implementing a technology and its impact on hiring the right people, mitigating risk and building a culture where people are promoted based on objective performance criteria.
Since the language of business is dollars and cents, metrics like ‘engagement’ or ‘worker satisfaction’ are only applicable as they relate to company value and profitability. Here is a serious question: Can you name the company that went from a value of $650 million to $0 in 1 month for reasons other than financial malfeasance (bad accounting, pricing, lack of investments, flawed business model)? Answer: Weinstein Film. The fall of Weinstein Film serves as a stark lesson for M&A firms who neglect HR issues such as harassment, and sexual assault, in assessing a company’s value
Step 2 – Using Metrics to Build HR Standardization and Consistency
Key metrics need to be set to ensure that each team is utilizing the company’s best practices in communication, performance, hiring, and productivity. Once an organization starts to grow, variation can set in as senior management becomes more removed from each team. The maximum limit for any manager or senior executive is really 7-10 people under their direct control with meaningful interaction with only about 50 or so people.
Using standardized metrics can help you discover if the right people are in the right roles. By building data, you can help identify, develop, and retain talent to utilize their skills in way that benefits both parties and adds value to the company’s bottom line. For instance, an individual may be a top performer in a production role but promoting them to manager may be detrimental to both their performance and the organization.
Step 3 – Creating Accountability – Understanding Different Teams Have Different Journeys
There is an old saying that ‘people join an organization but quit the team’. In other words, a person is engaged in their role for their organization but usually get disengaged because of poor leadership and team building. As a company grows, it is harder to ensure consistency between teams, procedures, and cultures. As such, each team reflects the strengths and shortcomings of their manager, which is why depending on one specific ‘company’ initiative may not be an effective investment. By using data such as a validated risk assessment, you can address specific issues in specific teams and utilize only the resources needed to get the greatest return on investment!
Step 4 – Acknowledging the value of data-driven HR
The value of utilizing data for HR purposes is important because it saves your company money, time, and energy by avoiding crises that range in size, expense, and severity. From minor internal complaints to major corporate conflicts, HR data provides a deeper understanding of organizations and reinvigorates HR departments with new value. Companies can adapt more quickly – taking advantage of opportunities while reacting to minor problems before they become a crisis.