Transcript Slide 0

Linking HR Metrics to Business Strategy
Figuring Out the Right Thing to Measure
September 17, 2008
Objectives
The value of HR as a strategic business partner is dependent upon
our ability to understand and respond to the drivers of change for
an organization or industry. Well, times they are a changin’….again.
Using the burning issue of metric as context, we will explore what
HR of the future looks like and the key principles it must apply in
order to be successful in driving value out of an organization's core
asset: it’s people.
Our specific objectives are:
• To inform you
• To engage you
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HR reality check
Ask Yourself These Questions:
1. Are we measuring the impact of any of the HR Initiatives in our
shop?
2. How did we determine what to measure? Were other members of
the Senior Leadership Team involved in setting those metrics?
3. How are we communicating the results of the measures to our
Senior Leadership Team? Do they use/care/react to the results?
Why? Why not?
…Are those metrics and action plans linked to the overall
corporate/business strategy? Do they address the issues keeping
the boss awake at night?
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Aligned at the Top: survey report
• “Aligned at the Top” is a groundbreaking survey of HR issues,
trends, and leading practices
• Objective was to understand the connect or disconnect between
senior business executives and HR leaders on people and HR issues
• Conducted by Deloitte Touche Tohmatsu and the Economist
Intelligence Unit
• Includes HR leaders and senior business executives
• Since the first survey in 2002:
– People and HR issues have continued to rise on the executive agenda
– HR functions have made significant strides to improve their efficiency and
service delivery
• Yet key questions remain:
– What are the people issues that keep executives awake at night?
– How are these issues being addressed, and what is HR’s role?
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Survey methodology
• Global survey of 531 individuals
and 468 companies
• 481 written survey responses
• 50 personal interviews
• 40 percent of responses from
HR leaders
• Companies of every size, from
every major region and industry
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People are critical to business performance
• Senior business
executives and
HR leaders
agree that
people are vital
to all aspects of
performance
• On average,
more than
85 percent
consider people
“extremely
vital” (the
purple bars) or
“very vital” (the
blue bars)
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Distinctive capabilities are key to success
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The key people challenges are clear . . .
● Senior business
executives and HR
leaders agree the most
critical people issues
are:
– Leadership development
– Workforce management
– Training
– Creating a highperformance culture
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. . . but HR’s role is still being defined
● “People” and “HR” are often treated as separate
conversations
People Issues
(Strategic)
HR Issues
Examples:
• Leadership development
• Workforce Management
• Training and development
• High-performance culture
Examples:
• Compensation and benefits
• Performance evaluations
• HR operating procedures
(Administrative)
When senior business executives talk about strategic
people issues, the HR function is rarely even mentioned.
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Significant opportunity to create value
• HR operating expenses typically
represent less than 1% of a
company’s total revenue.
HR Operating Expense
(<1%)
• Even huge efficiency
improvements have relatively
little impact on shareholder value
and the bottom line.
• HR must focus on improving
performance in the rest of the
business (“the other 99%”).
Potential HR Impact On Value
(99%)
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So what?.... We need to do something different
Senior business executives and HR leaders agree that people
issues are strategic to their companies. But there is a clear
gap between business needs and HR’s perceived focus and
capabilities.
• CHRO’s role as Strategist and Steward is based on 4 categories:
– Workforce Strategist
– Organizational Performance Conductor
– HR Service Delivery Owner
– Compliance and Governance Regulator
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Top people issues
How can HR leaders and the senior business executives work
together to overcome a company’s strategic people issues?
How can they ensure a link between those issue and the
company’s strategy?
Leadership development
Workforce management
Training and development
High-performance culture
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HR Metrics - Maturity spectrum
Companies typically mature from an unstructured planning process toward a more mature
and structured process. The development often follows a path such as this:
Maturity Levels
Leading

Advanced

Defined

Developing

Non-Existent





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No formal
planning process
No planning
tools
Inadequate
communication
Purely financial
budget


Inconsistent
process

Basic tools (e.g.,
Excel)

Ad hoc
spreadsheets

More
standardized
processes

Some
integration
across BUs

Reliance on ERP
as budget tool
Enterprise-wide
processes
Use of webenabled budget
tool
Rolling forecast
and other
advanced
processes


Planning process
fully integrated
with strategy
Real-time
forecasting and
performance
monitoring
Plans integrated
w/compensation
Strategic
Metrics
Little analytics
Highly manual
process
Traditional Metrics
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Traditional Metrics vs. Strategic Metrics
Traditional Metrics
Individual
Employee
Strategic Metrics
Whole Employee
Body
Traditional Metrics
HR Issues
• Time to hire
• Quantity of training
completed
• Focus on
individual/
discrete activities
• Focus on overall
cumulative impact
of activities
Strategic Metrics
People Issues
• Quality of Hire
• Effectiveness of
Training
Source: David Ulrich HR Balanced Scorecard
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Top 3 “Must Considers” in developing HR Metrics
1.
Know your current business
• Why do your customers use your product/service?
• How does the company measure success? (HR must understand and know
the financial statements)
• What is the connection between those two points and the employee?
2. Know and understand the Future Plans/Strategic Direction of
Your Business
• Why will customers use your product/service?
• How will the company measure success? (HR must understand and know the
financial statements)
• What is the connection between those two points and the employee?
3. Identify strategic measures – then figure out how to relate
the results $$$$ - the language of business.
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How to choose measures
What gets measured gets done
• Identify measures that are drivers of performance for each strategy.
– Do not develop and implement HR Metrics in a vacuum – involve the
CFO/Controller
• Analyze measures to include both leading and lagging indicators.
– Measure the current business and future business impact of action item
• Find the important drivers and reduce the number of measures
applied.
– Too many metrics become unnecessary and difficult to maintain
Source: “Challenge your Balanced Scorecard”, Graham
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Effective metrics drive Shareholder/Stakeholder
value
Organization
Alignment and
Accountability
Reward
Results
Strategic
Planning
Monitor
Results
Business
Planning
Shareholder/
Stakeholder
Value
Reporting
Analysis
Planning,
Budgeting &
Forecasting
Budgeting
Forecasting
Performance
Measurement
Performance
Measurement and
Reporting
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Sample of an Integrated approach
An HR scorecard : company X
Business Scorecard
Workforce Scorecard
BUSINESS SCORECARD
Customer Success
Financial Success
Business Process
People
Workforce Strategy
HR Service Delivery
• Mindset/Culture
• Align
• Competencies
• Integrate
• Behavior
• Differentiate
Organizational
Performance
• Strategic Partner
• Cultural Change
• Employee
Effectiveness
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Compliance &
Governance
•
•
•
•
•
•
Work Design
Perf. Measurement
Rewards
Selection
Development
Communication
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Identify measures that are drivers of performance
for each strategy.
Sample “Bus Unit A” Strategy
Map
Corporate
Objectives*
Sample Bus Unit A Strategies
Bus Unit A
Objectives*
Financial
Strategies
Customer
Strategies
Operational
Excellence
Best return on
information
technology (RoIT)
Maximize market share while
meeting current year revenue
& profit commitments
Improve brand
performance
• Brand
recognition
rating
Develop effective,
sustainable
marketing programs
Strategies
Attract the diversity,
skills and competencies
we need
*Note: “Corporate” is made up of “Business
Units” that in turn are made up of “Divisions”
and “sub-Divisions”
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World-class cost
structures
Build direct
business
capabilities
Capture the XYZ
market potential
Strategies
Employee
Simple and
rewarding
experiences
Protect Supplies
Business
Focused Innovation
Establish company
as a leader in
technology x
• Revenue / Total market
• Operating profit
Develop new
products /
solutions
• New product
ramp rates
• New product
revenue / Total
revenue
• Marketing spend /
Revenue
• % increase in marketing
reach
• Global diversity rating
• % Effective Hire
• Meeting employee retention
plans
Each measure should meet four
essential criteria:
Relevant - Directly linked to critical
objectives and strategies
Reliable - Verifiable and free from
subjective judgment or bias
Timely - Current; available before
it loses its capacity to help make
decisions about tomorrow’s
operations, activities, and budgets
Valuable - Able to help
management make significant
decisions about significant issues
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Analyze measures to include both leading and
lagging indicators
• Look to measure important business processes, not just results.
– A result may be a lagging indicator while the process that drives the result
may provide a more leading indicator of performance.
• Conduct an analysis to determine the cause and effect relationship
between measures and identify the best indicator of performance.
– In many instances, a measure can be predicted by one or more other
measures.
– Conducting a cause and effect analysis will help the management team to
understand the full set of potential measures and choose the most
appropriate measures to drive and measure performance.
– Example: Customer satisfaction may be predicted by on-time delivery rates, product
quality ratings, and employee engagement measures.
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Look at these measures of important business
processes – was HR involved?
Description
● Often times measurement of the process rather than the result provides a better leading
indicator of performances
How to Use
●
For the measures identified, determine
whether it is a process or result measure.
●
If the measure is a result measure,
determine if there is a process that drives
the result.
●
Identify a measure(s) that indicate
performance of the process.
Example Process Measures
Operational
Strategies
Sample Process Measures
“Differentiate the
product” or “Simplify
the product”
• Number of products or services
“Serve the customer
as a first priority”
• Length of the order fulfillment cycle
• Number of parts
• Number of “Epiphany to Product” ideas
developed
• Length of the manufacturing cycle
• Number of distribution points
“Develop
technologically
advanced products in
an effective manner”
• Product development lead time
“Procure material
effectively”
• Items passing quality standards
“Establish a low-cost
administrative
structure”
• Number of profit centers
“Develop our human
resource assets”
• Training hours achieved
• Number of engineering changes
• Number of new patents
• Unit cost
• Number of bank relationships
• Number of invoices
• Counseling frequency
Source: “implementing your strategies”, Keegan, Jones, Eiler
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No “Navel Gazing” please – Benchmark to the
Outside
• Most organizations will compare their performance to internal benchmarks (last year’s
performance or to plan).
• By comparing performance against external benchmarks, the Business Unit can
further understand how market and industry conditions may be affecting overall
performance.
• When reducing the number of measures, take into account how easily the measure
can be externally benchmarked.
Example information that can be used for external benchmarks:
• Benchmarking studies
• Statistics about major competitors
• Items in the business press
• Measurements of customer complaints
• Prices achieved for bellwether items
• Detailed part cost comparisons
• “Thought pieces” concerning innovative approaches to product distribution
• Capital redeployment techniques being used by others
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Questions?
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