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FEATURE1 June 2008

Measure for measure

Does your company's staffing strategy work? Daniel Wain examines the latest techniques and thinking surrounding the measurement of the effects of HR policy.

Few professions should be more sympathetic than ours to the maxim 'if you don't measure it, you can't manage it'. It's one of our key selling points. However, for the research industry, when it comes to measuring HR, we're not as sharp as we should be. As Daniel Boneham, Julie Muttiallu and Victoria Radbourne of Synovate stated in their paper 'When I grow up, I want to be...' at Research 2008, it is near-impossible to obtain reliable, robust, industry-wide data on employee retention rates: "How many people move between organisations, stay within the industry or go elsewhere? Even MRS says that no research has been conducted on the subject."

If you can't measure it, then...
To add to the charge-sheet, neither do we know how many people apply to enter the profession, and why; how many we select and where they come from; what their entry expectations are and how far they're met; how many we reject and why and where they then go; how many reject us and why; how many join then leave, why, and where they go; how much it costs and how long it takes to replace them; how many we retain, why, and so how we could retain more; nor how we stack up in all these areas against other industries. We're so busy collecting and analysing data for others that we forget to do likewise for ourselves, even when it comes to that most crucial and fundamental of assets, our people. As business guru Peter Drucker says, "Employees may be our greatest liability, but people are our greatest opportunity. Increasingly the success – indeed, the survival – of every business will depend on the performance of its knowledge workforce."

However, just because the industry as a whole doesn't measure this vital capital, that's no reason why individual organisations shouldn't. Indeed there could well be considerable competitive advantage for those that do. So, how to go about it?

First determine the specific priorities for your organisation. According to Graham O'Connell, head of organisational learning and standards at the National School of Government: "Measurement is definitely a case of best fit rather than best practice. Build measures around your particular priorities. Don't get caught up with what's simply in vogue." And periodically review those priorities to see if what was once the best fit measurement solution still fits.

Beware blind data
When you've identified the macro measure, next decide where, to what level and how you will collect the relevant data. If one determines staff turnover to be a current business challenge and thus that retention should be measured ( as it's not wildly inconceivable many research organisations might ), consider whether you'll collect just topline data, or by team, level of seniority, specialism, expertise, or split by ( from the company's perspective ) 'regrettable' and 'non-regrettable' losses. The latest Recruitment, Retention & Turnover Survey from the Chartered Institute of Personnel & Development ( CIPD ) shows that 95% of UK organisations explore why people leave 'voluntarily', 90% via exit interviews. However, despite a considerable majority having clearly identified 'high-performing employees' as a distinct category of staff, only 14% drill down to uncover the level of turnover amongst that prized population, let alone its cause.

Whilst the CIPD is awash with freely available benchmark data to help one measure the results of one's measures, and it's arguably better to do anything than nothing, consider that the more data you collect, the more cross-breaks you cut by and the more granular you go, then the more time, resource and money it will cost. So decide what you will do with the information, then ensure you only measure what will be useful, meaningful and actionable. Again, we should know this better than most.

Too much of a good thing
Similarly focus on the priorities and limit the metrics. Graham O'Connell counsels that "you can have too many metrics and spend all your time measuring, not doing, or measuring so much you don't focus on any or, worse, find that one contradicts another, leaving you paralysed with indecision. Conversely, you can have too few, leaving you as a one-trick pony. For me, between six and 10 seems about right."

"Also," says HR measurement specialist George Lewis of Hyland-Daniels, "have a considered view on what you'd like the answers to look like so that, if they don't, you've a clear indication where effort should be best spent, moving you in the right direction on the right measures." Besides retention, Lewis cites other common metrics: employee satisfaction or engagement; percentage of employees with a formal appraisal in the past year or with objectives, career development plans or succession plans; amount and value of training and development per employee; percentage of vacancies filled internally; percentage of job offers accepted; diversity of employees; absence levels; and even industry awards.

A delicate balance
One method of measuring business performance much feted in the 1990s was the 'balanced scorecard', introduced by Robert Kaplan and David Norton in a 1992 Harvard Business Review article. Their main argument was that a purely fiscal approach to measurement suffers from being both historical and too 'low', in that the current market value of a company usually excludes intangible assets such as intellectual capital, reputation or brand image. Thus the balanced scorecard focused on varied perspectives, allowing measurement not only of current performance but also a sophisticated divining of future progress. Benefits included the whole organisation being focused on a handful of key priorities crucial to business success ( such as external reputation or capability to develop ) and the ability to translate those into tangible just-in-time performance indicators at team and individual level. Graham O'Connell believes that after falling out of favour around the Millennium, the balanced scorecard is now enjoying a revival "due to the increased recognition, among senior managers, of the need for more than one simple, limited measure of success".

The bottom line is that all measures, whether balanced or not, should focus on what the organisation defines as adding value to its key stakeholders. They need to send a clear message to all staff as to where, and on what, they should concentrate their efforts. Reward has a large part to play here. As organisational development specialist Edgar H. Schein ( the inventor of the term 'corporate culture' ) said, "The most powerful mechanisms for embedding the required culture include what leaders pay attention to, measure, control and reward."

Measuring the measurers
Measuring HR is not just about measuring where you are now, but whether any actions taken to move elsewhere have had any influence. Thus the effectiveness of yourHR practices, policies and activities themselves should benefit from evaluation. Graham O'Connell recommends including both quantitative and qualitative measures: "Hard data, such as retention rates of high-flyers, to show the financial benefits to the business, but also success stories or case studies that show the contribution of HR policies or strategy."

And this is where that phrase oft-dreaded by the HR community enters through a trap-door: return on investment, or the ability to measure whether the effort has been worth it. "HR needs to prove its value to the business," says Jimmy Naudi, head of learning & development at Christian Aid, "by using financial data and citing organisational priorities, if need be in a mechanistic, production-based way. Numbers work wonders, but we need to then deliver what we've promised."

For Graham O'Connell, "ROI is talked about a great deal, both despite and because of the fact that no one's really cracked it." For a start, if there's a successful change, how does one single out a particular HR intervention as the cause, versus all the other elements in the mix? And whilstone might, for example, be able to prove the benefit of a specific training event, how can an organisation hope to calculate the value of continual, organisational learning? For George Lewis, "Frequently the focus is wrong. Don't ask the cost of training, but rather the cost of not training."

Recent research by University of Portsmouth Business School for the CIPD bangs in yet another nail: "ROI may still be a good indicator for a small range of learning interventions but it is not the most highly valued or most appropriate." Of greater use, they say, are 'return on expectation' ( ROE ) measures, "establishing upfront the anticipated benefits of HR interventions and then assessing how far these benefits have been realised."

Accounting for People

Since last October, all listed companies have been required, by law, to include a section on their people, or human capital in their annual report: a recommendation made by Denise Kingsmill following her 2003 'Accounting for People' enquiry. Though companies have been strongly encouraged for five years now to report on how they are managing, developing and measuring their human capital, as Paul Turner of the CIPD says, "It's surprising how little information is included in the average company report." Possibly this is because, as other CIPD research shows, most investors are only interested in information that gives an indication of the top team's ability to execute and deliver upon strategy.

Perhaps another reason is that most organisations still fail to show any correlation between the tracking of their human capital and financial results. After all, the end goal of HR measurement has to be improved business performance. This is why, for Graham O'Connell, "We must start to focus less on efficiency, more on effectiveness" – so measuring the output rather than the process.

Investing for the good
According to business guru Peter Honey, "All business activities cost money and most are acts of faith." So perhaps investing in improved HR practices should just instinctively be viewed as a good thing, based on a corporate belief that if you invest in your people something positive must happen.

Indeed the kind of accountancy circumfusion advocated by Kingsmill might not only produce inconclusive statistics, but could itself prove a complete waste of time, effort and money. As Einstein said, "Not everything that counts can be counted, and not everything that can be counted counts.".

Key notes
• If you don't measure it, you can't manage it – put the maxim into practice
• Measuring what others aren't can be a real source of competitive advantage
• Opt for best fit not best practice – don't measure what's simply in vogue, but what will help you focus on your business priorities and address your main corporate challenges
• Consider how much you measure and in what detail – you need to be able to do something with all the output
• Compare the reality with the ideal, and plan how you can move closer towards the latter
• Using a customised balanced scorecard might allow you to not only measure current performance but better predict the future
• People pay most attention to what they are measured and rewarded upon
• Measure both the status quo and the impact of any actions taken to change it
• Consider whether measuring return on investment really delivers... ROI
• Never forget the whole purpose of HR measurement: to create and control a positive impact upon business performance

June | 2008