One of the
most under measured parts of a business is the human resource capital and it
represents one of the biggest challenges facing business; namely finding the
best and brightest people. It is these human resources or people who ultimately
create value for the organization. People generate value through their
application of skills, talents, and abilities. The key is to invest in people
so that human resources are productive, knowledgeable, effective, and
efficient. This is what separates the average company from the exceptional.
Getting a return on this investment or ROI is extremely important.
People who
create lots of value often have certain characteristics:
They openly share their knowledge and
expertise with others
They transform data into intelligence for
better decision-making.
They pay attention to details, collecting
and gathering information to reach informed conclusions.
They communicate clearly and concisely.
We can
extend this concept to all aspects of intellectual capital; i.e. people
interact with processes, knowledge, systems, customers and other intangibles
within the business. Once you understand this interaction, you can measure
these relationships to ascertain returns on human resource capital. A critical
question to ask is: What impact does a person have on these intangibles? For
example, one employee may interact with complaining customers in order to gain
knowledge and improve the business. Another employee may view complaining
customers as a nuisance to be avoided.
Each process
can have its own unique set of metrics. These metrics can be applied within a
formal measurement system designed specifically for human resource capital. In his
book The ROI of Human Capital, Dr. Jac Fitz-enz describes how all performance
measurement systems can be placed into a matrix. The following matrix was
developed for measuring Human Resource Capital (HRC):
In the above
matrix, we would have costs associated with acquiring personnel; such as
advertising, agency fees, and relocation costs. These costs would fall under
Acquire Human Resource Capital. The next level down is time; i.e. how long did it take us to
recruit a new employee. Quantity would be the number of applications processed;
often viewed as the "driver" within the process. Error refers to any
event that does not meet our expectations; such as incorrect processing of new
applications. Finally, the Reaction level looks at how people respond to various
events within the process. This can be somewhat subjective. In any event, we
can transform our matrix into a Balanced Scorecard. Here are some examples of
metrics that correspond to each dimension:
Dimension
|
Measurement
Examples
|
Acquire HRC
|
Cost per Hire, Time Required to Fill Position
|
Maintain HRC
|
Average Pay per Employee, Labor Cost to Operating Cost Ratio
|
Develop HRC
|
Training Hours per Employee, % of People who can be
Promoted
|
Retain HRC
|
Turnover Cost, Retention Rate, % of Voluntary Separations to
Involuntary
|
“The challenge of human resources analytics
is to identify what data should be captured and how to use the data to model
and predict capabilities so the organization gets an optimal return on
investment on its human capital. The goal of human capital analytics is to
provide an organization with insights for effectively managing employees so
that business goals can be reached quickly and efficiently.” -
Human Capital Analytics: How to Harness
the Potential of Your Organization's Greatest Asset by Gene Pease, Boyce Byerly, and Jac Fitz-enz
Financial
professionals are often too focused on applying metrics to a process as opposed
to the underlying foundation behind the process; namely people. The emphasis
should be on people since people are the glue that pulls together the elements
of intellectual capital – processes, systems, knowledge, etc. Measuring and
managing this “glue” is critical to squeezing value from all elements of
intellectual capital.
The
Five Most Important Metrics for HR per Jac Fitz-enz:
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