Evaluating the contribution of the HR Function is common practice across numerous businesses, leaders have access to dashboards that provide an overview of business and financial performance and there is an expectation of the same from HR too. Return on investment can be demonstrated through formal measurement and evaluation processes, to show how the HR function adds value. Having the evidence data provides can also help organizations understand challenges better and appreciate where their time can be spent to drive effectiveness. Companies are more aware that employee performance can drive business success and organizational effectiveness; there is the opportunity for HR to become a valued added function.
HR analytics and measurement of the HR function have been discussed since the 1900s. There are different approaches that can be used to evaluating HR activities, such as HR Audit, analysis, qualitative and quantitative data, balance scorecard and benchmarking.
An audit can provide data and information that can build confidence in the effectiveness of the HR function; through reviewing the processes and how the service is used, an audit can highlight problem areas and provide solutions, potentially reducing HR costs.
Quantitative data is based upon statistics and gathering data; however qualitative information is gathered as anecdotal evidence through undertaking observations.
The analytical approach involves looking at costs against benefits and has a very commercial view providing financial information; examples could include reviewing the hiring process and employee appraisals.
The balanced scorecard involves setting key performance indicators and gathering data across four areas, financial performance, customer service, internal process and capacity to learn and achieve growth.
Benchmarking involves comparing their HR functions best practices to other companies to learn and demonstrate where improvements could be made.
These evaluation methods can be applied to various HR activities to review performance, provide analysis, measure success and help focus HR activities. Examples being HR performance metrics such as training spend per employee, employee absenteeism and labor cost per employee or general workforce metrics like engagement rate, average length of service and average age in addition to recruitment metrics such as time to hire, cost per hire and source of hire.
Using the analysis method, companies can monitor cost per hire of employees joining the business; this places a financial cost on recruiting new employees. To calculate the cost per hire, all costs both internally and externally needed to be added together then divided by the total number of hires in that timeframe. Factors like agency costs, advertising costs and the recruiter’s salary need to be factored in. By gathering data on cost per hire companies can look for ways to improve attraction methods, how to utilize technology and look for inefficiencies in the process. In 2015 Ericsson cut their cost per hire by 70% through improvements in resourcing and changes to their employer brand strategy, this impacted cost reduction. Their new brand strategy focused on social media branding, careers site, career blogs and encouraging employees to be brand ambassadors. This led to huge cost savings, which could be demonstrated through quantitative data back to the business showing how HR can add value. However some organizations place a higher value on quality of hire data than cost per hire, due to the importance of attracting talent into the business, both statistics will help provide a balanced view.
Another metric is training expenses per employee, to understand the cost of developing employees and looking for areas of improvement. There are a wide ranges of cost effective options available for undertaking training courses, from virtual learning, podcasts, coaching and smaller “lunch and learn” sessions, all that don’t necessarily involve travel costs or missing work hours. Coaching and informal training can be difficult to monitor however more structured training courses can be quantifiable. Direct costs, such as design and travel expenses in addition to indirect costs such as room bookings and internal trainers need to be factored into the calculations. Sodexo, a global facilities business, wanted to save training costs whilst also improving attendance. Due to needing a cost- effective solution they rolled out a virtual learning environment, which saved over $1m and attendance doubled.
Therefore through using a variety of HR methods and analysis, companies can use data to look for more effective ways to operate, help focus time and demonstrate value to the business. Highlighting cost savings across the business and demonstrating value, HR leaders are more likely build confidence in the HR function, secure additional investment and drive the strategic conversation. The better HR becomes at demonstrating value through metrics and analytics the more likely it is to become a strategic partner.
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