HR and Organizational Success

THE RIGHT PEOPLE DOING THE RIGHT THINGS THE RIGHT WAY

Measuring Human Resource programs is important for principal reasons:

• Ensuring HR resources are managed effectively
• Assessing the impact of HR activities on people, performance and the value of human capital
• Understanding the impact of people on business performance
• Making sure the right people are doing the right work the right way

1. Ensuring HR resources are managed effectively

The HR department needs to manage its own resources effectively and show how its activities add value to the organization. HR needs to provide excellent service to its internal customers and ensure HR initiatives are cost effective.

Alignment with business strategy - Doing the Right Things

Know the Difference Between Effectiveness and Efficiency

The ultimate aim of all HR activity is to enable the organization to deliver its business strategy.

HR resources need to be focused on supporting that goal and need to be aligned to it so that it is both efficient and effective.

However, sometimes unintentionally, HR activities are created in their own right, independent of the business strategy and the requirements of the organization.?

Witness the performance management program that enables HR to promote the illusion that a meaningful program exists; however, the program objective is to justify annual pay increases, is segregated from the business strategy and actually works against it.?HR measures need to show what is being achieved by HR’s programs in relation to business objectives and at what cost.

HR policies and practices need to be aligned ‘vertically’ to business strategy through a human resources or human capital strategy.

Aligning HR with business strategy can boost employee satisfaction and performance, ensure teams are aligned to help the business achieve its strategic objectives, and increase their influence and decision-making power across the organization.

When you consider how to align HR strategy with business strategy, start with a clear definition of what is "SUCCESS" to the business. That should be the starting point for defining HR goals.

HR policies, programs, and practices also need to be aligned ‘horizontally’ to provide a coherent framework for people management and development. This means different HR activities contribute consistently to achieve the same objectives and outcomes. This is the key to HR practices supporting the business strategy, particularly the extent to which "success" means being competitive.

For example, the performance management process needs to reinforce coaching, learning and development, and encourage regular attendance. In this way, HR resources are optimized and focused on business results.

An effective process for identifying measures provides a means to ensure vertical and horizontal alignment of HR activities to support the business strategy and reinforce one another.

2.?????Assessing the impact of HR activities on people, performance and the value of human capital

HR needs to assess the impact of HR activities on the people in the organization – are those activities making a difference and adding to the value of human capital?

People mean results - If They are Doing the Right Things

It is a fact, research has undisputedly demonstrated the links that exist between HR policies, processes and practice, people management and development, and organizational results. These practices have been shown to make the greatest difference to business performance of all the factors considered (e.g. strategy; technology; research and development; quality management). HR measurement seeks to track and evaluate the impact of HR and people practices on the recruitment, development, performance and engagement of people.

3. Understanding the impact of people on business performance - Doing Things the Right Way

The organization needs to understand and manage how people contribute to organizational results – as leaders, managers and individuals.

The People and Performance link

Research has identified a model of people and performance that describes the nature of the links between people and results. The research shows that people performance is founded on Ability + Motivation + Opportunity (or ‘AMO’):

• Do people have the necessary?ability?to do the job?
• Do they have the?motivation?to perform?
• Do they have the?opportunity?to deploy their skills in the job?

The ability, motivation and opportunity (AMO) model is?a business model that human resources (HR) professionals use to describe the complex relationship between individuals in the workplace and their outcomes. Understanding this model can help you know how organizations can use it to improve employee success.

Consequently, organizations need the HR policies and people management practices to create the conditions for AMO that leads to increased ‘discretionary behavior’ by employees, meaning they ‘go the extra mile’ because they can and they want to.?

Front line supervisors and managers have a crucial role to play in enacting these HR policies and supervisors/managers need to behave in ways that encourage positive attitudes in their staff (reference the articles on Change Management and Recognition Improvement). Measurement would aim to demonstrate the links between leadership, management, engagement, people performance and business results.

Benefits of Measurement

Developing suitable HR measures and an effective process for measuring and managing them is essential if organizations are to understand and optimize the contribution of their people. Effective measurement will also enable you to understand which HR activities are most or least effective in delivering results for your organization.

The most common metrics used by HR include headcount, turnover, diversity, compensation, the total cost of workforce spans and layers, employee engagement, talent acquisition, learning, workforce planning, productivity, and manager effectiveness.

Given the relationships between HR policies, people management practices, employee engagement, capability, behavior and business results, an effective HR management and measurement process should seek to capture all these different elements. Measures should track the links and causal relationships between these elements to enable them to be managed effectively.

Methods of Measurement

There are several methods that can be used to measure the effectiveness (“doing the right things”) and efficiency (“doing things right”) of HR programs toward adding value to the organization’s human capital.???Both effectiveness and efficiency should be measured so that the HR programs are not skewed toward one and disrupts the other.?A good example is the performance evaluation and pay program.?Some businesses will focus on an employee's readily available production and attendance numbers with an added recommendation of the supervisor (which must conform with the “numbers”).?The practice of using operational data is very efficient, since it relies on already available numbers which, in the eyes of operation’s management, are the best indicators of an agent’s overall performance and value.?

However, such a one-dimensional practice avoids the question of whether the agent is “doing the right things,” consequently making the improvement of systemic, integrated work practices and methods a mute issue.?

Bad work methods, practices, or even demotivating behaviors produced by bad practices are left unrevealed and probably even applauded and perpetuated.

In such a case, the performance evaluation program may be under the ownership of human resources, but the impact and meaningfulness of the program is determined by operations.?This is more of a possibility with a command-and-control management style where one factor, the knowledge of operations management, strongly influences the design and practice of programs affecting human capital.

In order to conduct a meaningful, well-rounded (“vertical and horizontal”) evaluation of human resources programs human resources itself must act as would an external consultant, free of the pressures or influence of existing stakeholders (or at least cognizant of such influence) and whose voice is heard and respected.

Assessing the Internal Effectiveness and Efficiency of the Human Resources Department - HR Audits - Are Your People Doing the Right Things The Right Way?

What Is an HR Audit? An HR audit is?an objective examination of your business's HR policies, practices, and procedures. The goal is to look for trouble spots and/or identify ways you can improve. You can hire an outside company to perform the audit or you can instruct your HR department to perform an internal audit.

The HR audit is the primary tool that many HR departments utilize in an effort to assess their own effectiveness and efficiency.

Usually conducted in-house, HR audits have a number of purposes and produce a variety of results.?In-house audits are often focused on a current area of concern or emphasis (e.g., compliance, recordkeeping) with a need to find a “quick fix” to a legal exposure and/or a common cause of employee complaints. Ultimately, however, the overall purpose should be to ascertain how well the HR department—through all of its various internal activities—has aligned itself with the organization’s strategic objectives.

More specifically, HR audits will scrutinize and draw conclusions relative to

• The degree to which the organization complies with legal requirements
• The degree to which HR services are "user friendly"
• Grievances, their causes, and their impact
• The degree to which the organization complies with I-9 requirements
• The degree to which core competencies have been identified and defined
• The degree to which recruiting, selection, and retention processes reflect the organization’s core competencies
• The degree to which the necessary site headcount is being sustained by recruiting
• The degree to which the organization achieves the ways it has chosen to position itself in the marketplace with respect to compensation and benefits (lead, lag, or match)
• The usefulness, appropriateness, and effectiveness of the employee handbook
• The degree to which existing OD initiatives, including training programs, meet the company’s current and emerging human capital needs
• The degree to which the organization’s safety program complies with federal, state, and local guidelines, and the degree to which it supports the company’s objectives.

Two Key Types of Analytical Methods

Return on Investment (ROI) Analysis

"Return on Investment," or ROI, is the term given to a mathematical calculation used in the finance industry and business in general. The ROI measures the financial return on an investment made, or it can be applied to a business measuring the performance of the firm by assessing the net profit compared with the overall net worth of the company. In more recent years, the ROI concept has been adopted by organizations to evaluate projects and programs on a smaller scale.

Importance of ROI to HR

Using quantifiable metrics improves the credibility of HR as a profession, and allows upper management to identify specific, measurable ways that HR services benefit the organization. It's no longer enough to state that a certain program is believed to be beneficial -- you need to be able to prove the worth of your actions. In difficult economic times or when an organization must depend on its financial and human capital to establish and maintain its market leadership, the value of support services -- often seen as peripheral to the organization's core mission or product -- comes under increasing scrutiny. Consequently, it becomes even more important for HR professionals to show how HR services directly impact the bottom line, while identifying and eliminating programs that are not financially efficient.

HR Management vs. Human Capital Management

Human capital (HC) is an intangible asset that is a sum of the economic value of employees’ experience and skills. The ‘capital,’ in this instance, refers to assets such as knowledge, skills, health, education, etc. There is a distinct difference between human resources and human capital.?

Human capital ROI (HCROI) is a strategic HR metric that reflects the financial value added by the workforce as a result of the money spent on employees (in terms of recruiting, employee compensation, talent management, training, etc.). It shows the value that employees contribute individually or collectively. The metric is a true reflection of the value of the human capital in an organization.

Examples of ROI in HR

HR can use ROI metrics to analyze the value of almost any of its services, as long as a dollar cost can be determined. For example, if HR introduces a new health and safety program, its effectiveness can be measured by the associated reduction in costs of work-related injuries. The value of a new employee orientation program can be measured in terms of an ROI by assessing the costs saved by correlated reductions in turnover or employee morale. Recruiting programs, HR information systems, training, development and mentoring initiatives are additional examples of HR programs that can be measured by the ROI calculation.

For example, at one call center in Texas, which needed to improve its recognition of employees to reinforce its positive organizational culture, the idea of a large billboard at a high-traffic location which announced employees with significant accomplishments (including their picture) directly affected intrinsic motivation factors and created a level of pride within the call center, the employee’s family, and their community.

Calculating ROI in HR

To calculate the ROI of human capital, divide the organization's (or site) net revenue -- gross revenue after deducting operating expenses, salaries and benefits -- by the cost of salaries and benefits. To calculate the ROI of a particular program, you must first calculate the value of the specific program itself, then divide it by the costs of implementing the program. For example, if a training program to improve supervisor coaching skills results in increased agent productivity, calculate the value of the additional training program and divide that by the costs of providing the training and related materials. In some cases -- a general increase in productivity, for example -- you will need to isolate the portion of the increase that was because of an HR measure before calculating ROI. Conduct an analysis of groups that underwent a training class, versus groups that did not, to estimate the effect. This could also be used with recognition programs, comparing groups that were submitted to a particular recognition and reward program with those that were not.?Such a comparison should be conducted on pilot efforts, so that lessons learned can be applied to a program implemented company-wide.

Cost Benefit Analysis

Human resources decisions on a best course of action become much easier after conducting a cost-benefit analysis. By using a cost-benefit analysis, HR can quantitatively compare potential returns against associated costs of investing in projects such as employee training, a program to reduce absenteeism or automating HR processes. In reality, a cost-benefit analysis is useful whenever HR has a question that starts with "what if" or "should we."

Outcome-Orientation

While it’s easy to view costs associated with HR ideas and initiatives, it’s often more difficult to view benefits in terms of dollars. Unless HR can shift attention from focusing on process costs to focusing on financial return and benefits, human capital investments are often harder to justify and fund. A cost-benefit analysis provides both a framework and system for achieving these critical goals. Not only does a cost-benefit analysis allow HR to determine the potential returns of human capital investments but also provides a way to compare alternatives.

Cost Development Guidelines

HR programs have both direct and hidden, or indirect, costs. Both are critical to presenting a full costing profile. Direct costs can include equipment, supplies, fees paid to a trainer or a system development and design specialist. Indirect costs typically include wages and lost production time for participating employees. For example, a skills training program cost profile can include a trainer, program materials, facilities, refreshments and wages -- including the cost of benefits -- for participants, the program coordinator and administrative personnel.

Benefits and ROI

The benefit and return aspects of the analysis focus on selecting performance metrics to show potential cost savings, such as reduced insurance costs, overtime wage expenses and lost productivity. The goal is to link benefits to quality, productivity and efficiency improvements, or to increased sales revenues or customer satisfaction.

For example, a cost-benefit analysis for a safety training program would show how the program can reduce worker’s compensation insurance premiums and potential legal fees, while increasing productivity and sales revenues by reducing the frequency and severity of on-the-job injuries.?Or for a recognition program a cost-benefit analysis would show how the program increased productivity, attendance, attrition, or even recruiting results (an employee referral program is a good candidate for a cost-benefit analysis).?

Comparing Alternative Solutions

Alternative solutions for an idea or problem allow HR to present and compare the potential returns of more than one choice. Each alternative -- including an option to maintain the status quo -- has its own cost-benefit analysis. For example, alternative solutions to meet a business’s annual hiring needs might include a cost-benefit analysis for designing and implementing an employee referral program, radio or television advertising campaigns and hosting a series of on-site job fairs.?The following are examples of comparing alternative solutions and arriving at the best option in which I was fortunate to play a key role:

·???????One major employer in the energy industry used cost-benefit analysis to evaluate all its corporate HR programs.?The analysis included a breakdown of the tasks of every position versus the cost of a set of tasks (per task cost).??Originally, the company had a corporate HR department of 150 employees.?After the comprehensive analysis, the HR department was a lean, highly productive 70 employees (this included a change to skill-based pay and an integrated, whole-systems bonus program that included all levels of the company achieving clear profit objectives). This effort combined cost-benefit analysis and work integration with the result of identifying the best design of HR work flow, processes, and jobs (and method of compensation) and how the redesigned jobs and processes best supported the company’s business strategy.?

?·???????Although the public sector is not normally considered as progressive and innovative as the private sector, largely due to the absence of a clear “bottom line,” some municipalities have rejected this long-held opinion and moved toward organizational models that match, or even exceed, many private sector models.??During the 1970’s and 1980’s, public and private organizations were focused on a problem-solving or performance based style of operating, using management tools such as Zero-Based Budgeting (ZBB), Management by Objectives (MBO) and Performance-Based Budgeting (PBB) to “objectively measure” the performance of an organization’s “parts.”?Thus, prevailing management tools of the times defined the performance of an organization by the sum of the performance of its parts, rather than on the ability of the parts to integrate and work cohesively within a self-generating system.?The chaos of the 1980’s, coupled with the birth of the TQM movement in the United States and the rapid growth of the information age spawned by the internet, produced successful organizations in the 1990s that were focused on a whole-systems approach to doing business. These organizations are characterized by a learning-based management focus.?A “Learning Organization” is one in which people at all levels, individually and collectively, are continually increasing their capacity to produce results they really care about.??

In the early 1990’s, the City of Plano, Texas recognized that government would be required to provide competitive services and maintain (and in some cases, increase) performance to achieve a high-level of responsiveness to citizens with the same or fewer resources.?Such a high level of performance and continuous improvement requires a great deal of learning, particularly since there was no clear path to success, no clear path to follow.?

The City of Plano set about to completely redesign itself.???Plano first took a step toward pay-for-performance and performance management programs that promoted individual accountability.?However, it did so after it evaluated the “what if” of such a dramatic change.?The results of the cost-benefit analysis were clear, in today’s world, companies and cities are challenged to continually question why and how they do business in the manner that they do.?In order to accomplish this, their structures must be fluid enough to be able to tap into chaos and creativity of the self-organizing system that forms a shroud around a formal organizational structure.??The City of Plano’s need to reach out and support the part of the organization where the work was getting done and the ideas were flowing freely in spite of intentional efforts to impose a structure and hierarchy that may, in some cases, impede progress was supported by the success of its pilot efforts.?The City of Plano moved forward with its innovative approach and now is a model of effectiveness and efficiency, and citizen satisfaction, that is the envy of public and private sector organizations.

?·???????The call center of a major telecommunications company was responsible for providing the company’s bilingual customer service.?However, although the center’s compensation was above the local market median, it was not recruiting the quality bilingual agents it needed.?Several solutions were discussed and the top three were subjected to an ROI analysis.?The most creative and “out-of-the-box” proposal had the higher cost but also would produce the greater return on investment of staff time and production costs.??Needing results quickly and dramatically, the most expensive option was chosen.?The project’s result, within a month, was a high-quality, 17-minute video production of the site, its people, and its culture.?The production was a tremendous success, not only triggering a recruiting spike of highly qualified applicants, but also spurring employee morale and, incidentally, opening the door to the recognition of the national Hispanic community and the pay-offs possible by promoting its product and services to the growing Hispanic market.

?Conclusion

Is HR contributing to the organization’s bottom line? To its purpose? To its mission??Such questions must be answered if HR is to be considered a valued partner in the organization’s drive to success.??Using HR audits, ROI and/or cost-benefit analysis should be considered mandatory and HR staff should continuously evaluate its functions, vertical and horizontal, for consistency in driving the organization’s mission and values.?

There are examples of organizations in the private and public sector that have approached its challenges successfully through well-thought out methodologies that combined creativity, innovation, analytics, and risk-taking and succeeded often beyond expectations.?

Above all, be sure your employees are the right people, doing the right things, the right way.