Contributed by HR West 2018 Speaker, Holly Burkett, Ph.D., SPHR
In a hypercompetitive market for knowledge workers, CEOs are looking to HR for strategic, data-driven solutions around talent challenges. Talent is critical to the execution of strategy, talent investments continue to rise, and human resource professionals face increased pressure from CEOs to make talent investments pay off.
Despite these growing expectations, many HR functions operate in a reactive, ad-hoc mode when fielding requests for data. Many struggle to connect talent initiatives to higher-level business results such as revenue, profit and customer satisfaction. When unable to make these links, HR managers are viewed as lacking the strategic clout needed to shape and contribute to organizational priorities.
Amid today’s data revolution, high-performing HR organizations must adopt advanced measures and analytic tools to communicate value. HR must view initiatives through a data-driven lens to provide strategic clarity about decisions on how to better attract, retain and grow talent.
At Macy’s, for example, the HR team uses standardized metrics to put the right people in the right roles at the 172,500-employee retail company. Megan Leasher, Macy’s Director of Talent Assessment and Measurement, describes herself as a “scientist-practitioner.” Leasher, named one of HR’s Rising Stars in 2016 by Human Resource Executive, says her self-described role combines psychology with “cold, hard data” to evaluate executives and predict future leadership performance. She believes the combination has given her strategic talent insights to identify leaders who can guide the company through restructuring as it responds to dynamic changes in consumer shopping habits.
Defining the Business Value of HR Data
While cheaper, faster technologies have made it more affordable than ever for HR to collect and analyze large data sets, it is often a challenge to know what to measure and where to start.
Commonly used metrics include time-to-fill, quality of hire, source of hire, employee referrals, leads-to-interview and diversity measures, among others. But to fully get your CEO’s attention, it’s important to quantify the impact of the HR metric on revenue dollars, so that it’s easily comparable to other business measures. Examples include:
- Cost of the vacancy. Calculates revenue and productivity loss when a job is not filled. Related to time-to-fill, but is more specific and focuses on linking revenue to the vacancy by calculating the opportunity cost to the company if deadlines are missed (such as new product or software launches, or the impact on customer satisfaction scores if there are fewer agents responding to customers).
- Revenue-per-employee. Focuses on the value of the output of a firm’s workforce (i.e., revenue dollars), where the total yearly corporate revenue is divided by the average number of full-time employees. High performing companies produce a higher revenue-per-employee number. Relatively easy to compare firms in the same industry since it uses publicly available information for all publicly listed firms.
- New hire turnover. Estimates the impact of turnover with new hires who have been involuntarily terminated, based on the percentage of new hires terminated during the first 6-to-12 months after they start. May also include an estimate for any “damage” done during their tenure. Turnover of new hires is related, but focuses on those who leave voluntarily within the first few months.
- Performance turnover in key jobs. Measures the percentage of employees in key jobs who voluntarily quit per month, and over the whole year. Since losing top performers is costlier to an organization, HR works with the CFO to assign a higher weighted average to the turnover of key employees to calculate cost.
- Candidates-to-Customers Ratio. Examines the ratio of candidates to customers. For instance, many business-to-consumer organizations, such as retailers or telecommunications firms, watch this ratio closely to see how many rejected candidates are no longer customers after the hiring process. This metric can also speak to the effectiveness of an employer brand.
A best practice approach is to deliver metrics that roll up to specific business units and divisions. Data can also be broken down into other meaningful segments, such as professional vs. non-professional positions, full-time vs. part-time roles, active vs. on-hold positions, and job title vs. business unit. Metrics are most commonly reported on a monthly or quarterly basis and then rolled into a year-end or dashboard report of Key Performance Indicators (KPIs).
Minding the Gap
The need for talent managers and human resource professionals to establish a credible connection to business impact has never been greater. The real value, however, isn’t so much on the metrics themselves, but rather how those metrics are presented and used to inform strategic actions.
HR leaders should ask themselves: “What will the CEO or CFO actually do with results?
It’s important for HR professionals to embrace measurement for what it is and what it can do to revolutionize the impact and credibility of HR – especially since people analytics has been cited as one of the biggest capability gaps among HR practitioners today.
Do you know what levers to pull to drive business outcomes and influence strategic and actionable business decisions? Consider what metrics you’re reporting now and how your executives would rank them in terms of value. No matter how sophisticated or rigorous your metrics systems are, there’s always room to grow your own talent measurements, and to firm up the connection between talent development and business performance.
Holly Burkett, Ph.D., SPHR, is an accomplished talent builder, strategic change agent, HRD consultant, speaker, coach, trainer and award-winning author of Learning for the Long Run. Her Twitter handle is @evalworks . Portions of this article are excerpted from her book.
Holly will present, HR as Change Agent: Building Leaders’ Capabilities at HR West 2018 – March 7th at 8:30a.m.