Measuring the ROI of HR

By Shari Caudron

Jan. 8, 2002

It’s impossible to know where to focus your resources unless you have solid HR data. Alicia Main, an HR analyst with Best Practices, LLC, a research and consulting firm in Chapel Hill, North Carolina, shares three ways that HR professionals can track their successes.

  1. Track human resources activity levels with a balanced scorecard to emphasize the department’s contribution to company goals. Best-in-class companies align HR measurements with the strategic goals of the company. By creating balanced scorecards, companies track a variety of financial, quality-oriented, operational, and strategic measurements.

    According to Mark Huselid, who along with Brian Becker and Dave Ulrich wrote The HR Scorecard: Linking People, Strategy, and Performance (Harvard Business School Press, 2001), an HR scorecard is a mechanism for describing how people and people-management systems create value in organizations. It is based on a “strategy map,” which is a visual depiction of what causes what in an organization, beginning with the people and ending with shareholder or other stakeholder outcomes.

    For example, in a pharmaceutical company, shareholder returns may come from growing revenues. Revenues, in turn, are driven by developing innovative drugs and marshaling them through the regulatory process. And developing innovative drugs depends on a stable, high-talent R&D function, which is the job of HR. By tracing its strategy back to HR needs in this way, a company can see the direct cause and effect between HR and revenue.

    By using a strategy map, HR knows what to deliver, and the metrics on the balanced scorecard-which are linked directly to the deliverables and may include such things as cost per hire, turnover rate, HR competencies, and alignment of HR practices-tell HR if it is delivering.

    Implementing an HR scorecard focuses the company on the deliverables that lead to competitive business advantage and enables HR executives to monitor costs while tracking the value added to the company’s bottom line.

  2. Track HR performance metrics at the corporate level to ensure consistent measurement and predict overall company growth. Although the phrase “what gets measured gets managed” is so overused that it’s almost a cliché, the fact remains that the statement is true. Tracking specific HR metrics at the corporate level gives executives an overall view of the company’s HR activities and successes.

    Some corporate metrics to track are employee turnover rates; top talent defection rates; absenteeism; safety incidents; overall head-count; compensation and benefits competitiveness; total employees trained; total training hours; HR expenses as a percentage of total operating expenses; internal customer satisfaction; diversity; time to fill positions; and cost per hire.

  3. Survey employee attitudes and identify informal thought leaders to detect workplace concerns. Best-in-class companies consider employees to be the internal customers of the HR function. Just as success for a business depends on its customer-satisfaction levels, the success of HR in such organizations hinges on the satisfaction of employees.

    Best-in-class companies regularly survey employees to identify effective practices and determine employee concerns. Typically, employees are surveyed about such things as morale, job fit, teamwork, physical working conditions, promotion opportunities, training practices, and treatment by the management team.

Workforce, December 2001, p. 28Subscribe Now!

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