Efficiency Indicators in Human Resources Management

Cristina Simón. Human Resources Area. Instituto de Empresa

20 May 2003

The Human Resources function is frequently one of the most questioned from the point of view of corporate logic. Despite the recognized importance of so-called “talent” or “human capital”, particularly in the services sector, whenever a company faces adverse conditions, investments in these policies are first to be cut back.

There are two reasons for this apparent contradiction. One is the enormous difficulty of quantifying aspects relating to people. How do we translate into numbers our feelings or the way we behave? How to measure the motivation with which we tackle a particular task? HR managers today face a problem their colleagues in Finance, Operations or Marketing solved long ago.

Another sizeable limitation is the temporal dimension. A business’s logic must be perceived with ever greater speed. A director is expected to justify return on investments in his or her area by the end of the half-year period or even quarter. But, as pointed out by Gratton (2001), people function on the basis of different temporal criteria. We cannot expect a development program to produce immediate results among employees, nor should we forecast such results in the medium-term - the way marketing specialists estimate sales they hope will be generated by a sales campaign. Despite these restrictions, the need remains to undertake quantification of people-related variables - and here lies the key to Human Resources assuming the leading role that rightly belongs to it.

There are three approaches to designing efficiency metrics in Human Resources management:

Perceptions. Human Resource efficiency measurements can be obtained from satisfaction perceived by end-users; that is, the company’s own employees. Satisfaction surveys or climate studies, which frequently include questions on the evaluation of HR practices, are good examples of this measurement approach.

Benchmarking. This compares practices with those of other companies with a comparable structure or volume. A Benchmarking Club was recently created in Spain, in which Instituto de Empresa and AEDIPE coordinate this practice with firms organized by sectors of activity.

Business. This consists of drafting a series of metrics based on financial concepts, such as ROI (Return on Investment) or Value Added, and obtaining equivalent measurements (Human Capital ROI, Human Capital Value Added). It has the advantage of situating the Human Resources professional in the business logic and language, thereby optimizing in-house sale of certain decisions to line managers.

These approaches complement each other, and it is possible to combine different types of metrics when evaluating decisions on whether to invest in people-management programs. In practice, HR professionals must draft their own Balanced Scorecard based on certain questions, such as:

What type of efficiency information do I want to highlight?
What impact does this information have on business results?
Which indicators are most realistic; that is, what type of measurements can I take in a valid and reliable way?

Answers to these questions will depend on the company’s business strategy and its corporate style and culture. This takes us, as a last reflection, to the need for in-depth knowledge of corporate aspects that goes beyond traditional competencies of specialists in Human Resources.

Human Resources Program Indicators - Examples

Selection: No. of candidates achieved per vacancy to be filled · Average incorporation time of a person since vacancy arises · Recruitment/Selection cost per new incorporation

Employee Stability/General Satisfaction: Turnover index (total departures/time period)· Corporate attrition index (voluntary departures/time period)· Results of satisfaction surveys· Absenteeism rate (total no. of non-productive working hours)

Health & Safety: No. of accidents/Time cycle· Total cost of accidents · Certifications as per valid regulations

Training: Training expenditure/Operating costs· Hours of training/Employee· No. of new training programs · No. of trained employees/Total employees

Assessment: No. of employees involved in an assessment system · Discrimination capacity: No. of employees allotted to each assessment category

Career & Development Plans: No. of employees with formal career plan· No. of employees involved in a Potential Identification Program· Development program cost/Total · Investment in development of employees with potential (e.g. Master Course grants)

Human Resources Infrastructure: Human Resources Budget/Income from sales · No. of employees/Human Resources technician · Human Resources expenditure/Employee

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