Measuring the ROI of HR

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Measuring the ROI of HR

  1. 1. Measuring HR’s Return on Investment A Society for Human Resource Management Presentation © 2008 SHRM
  2. 2. Cake Baking Measuring HR’s Return on Investment
  3. 3. To measure or not to measure?! Measuring HR’s Return on Investment
  4. 4. Potential vs. Actual Use Measuring HR’s Return on Investment
  5. 5. Source of value has shifted from tangible to intangible assets. 1982 and 1992 - The Brookings Institution analysis of S&P500 companies. 2002 - Kaplan & Norton In 1982, intangible assets comprised 38% of a company’s market value. By 2002, that number soared to 85%! Measuring HR’s Return on Investment
  6. 6. Value vs. Quality Measurement Financial Performance Employee Performance Operating Efficiency Percent of Executives Customer Satisfaction Innovation/ Change Measuring HR’s Return on Investment
  7. 7. Quality of Measures Financial Performance Employee Performance Operating Efficiency Percent of Executives Customer Satisfaction Measuring HR’s Return on Investment
  8. 8. Use of Measures Financial Performance Employee Performance Operating Efficiency Percent reporting measures Customer Satisfaction Measuring HR’s Return on Investment
  9. 9. HR involvement in strategic activities <ul><li>Of the following activities, to which are your HR department most frequently sought to contribute? </li></ul><ul><li>Recruit and retain – 77% </li></ul><ul><li>Health care costs – 60% </li></ul><ul><li>Keep costs down – 49% </li></ul><ul><li>Human capital strategy – 22% </li></ul><ul><li>Head strategic planning – 16.5% </li></ul><ul><li>Measure business drivers – 16.5% </li></ul>Source: SHRM Weekly Survey, March 2004 Measuring HR’s Return on Investment
  10. 10. Measurement Philosophy – Old vs. New The fundamental distinction between old and new measurement philosophies is “an understanding of the contribution of the workforce versus a focus on understanding the cost of the workforce. Source: The Workforce Scorecard: Managing Human Capital to Execute Strategy Measuring HR’s Return on Investment
  11. 11. 7 principles for effective workforce metrics <ul><li>Recognize and work to change outdated management perceptions of workforce value and HR measurements. </li></ul>Measuring HR’s Return on Investment
  12. 12. 7 principles for effective workforce metrics <ul><li>Recognize and work to change outdated management perceptions of workforce value and HR measurements. </li></ul><ul><li>Metrics must be dependent upon the alignment of the workforce with the organization’s overall business strategies. </li></ul>Measuring HR’s Return on Investment
  13. 13. On Strategy… Strategy is the result of a unique set of organizational activities that bring the value proposition to the customer. Measuring HR’s Return on Investment
  14. 14. Strategy development process Process starts at the bottom. Business strategies are the foundation. Source of concept: Huselid, Becker & Beatty Measuring HR’s Return on Investment HR Strategies Workforce Strategies Business Strategies
  15. 15. Organizational value creation process Process starts at the top. HR strategies drive value creation for workforce and business strategies. Source of concept: Huselid, Becker & Beatty Measuring HR’s Return on Investment HR Strategies Workforce Strategies Business Strategies
  16. 16. Organizational value creation process Measuring HR’s Return on Investment Value Creation Process HR practices HR mgmt. systems HR competencies Leadership/ workforce behaviors Workforce culture/ mind-set Workforce competencies Financial success Customer success Operational success
  17. 17. Percent of Organizational Operating Budget Measuring HR’s Return on Investment
  18. 18. SYSCO: Metrics Show that Units With High Employee Satisfaction Perform Better Than Units with Lower Satisfaction. These percentages are sample, not actual results. Measuring HR’s Return on Investment
  19. 19. 7 principles for effective workforce metrics <ul><li>Recognize and work to change outdated management perceptions of workforce value and HR measurements. </li></ul><ul><li>Metrics must be dependent upon the alignment of the workforce with the organization’s overall business strategies . </li></ul><ul><li>Workforce differentiation is key. </li></ul>Measuring HR’s Return on Investment
  20. 20. Differentiation When determining employee value relative to organizational strategy, not all things are created equal. Measuring HR’s Return on Investment
  21. 21. Myth: More is better Measuring HR’s Return on Investment
  22. 22. 7 principles for effective workforce metrics <ul><li>Recognize and work to change outdated management perceptions of workforce value and HR measurements. </li></ul><ul><li>Metrics must be dependent upon the alignment of the workforce with the organization’s overall business strategies. </li></ul><ul><li>Workforce differentiation is key. </li></ul><ul><li>Answer the right questions, not all the questions. </li></ul>Measuring HR’s Return on Investment
  23. 23. <ul><li>Customer complaints as a proportion of sales </li></ul><ul><li>Number of new product offerings unlike anything sold by the competition </li></ul><ul><li>Percent of “A” customer retained </li></ul><ul><li>Percent of customers who believe their issues/concerns are listened to and addressed </li></ul><ul><li>Public perception of organization as a market leader </li></ul><ul><li>Quality of brand awareness </li></ul>Sample Workforce Success Metrics Source: The Workforce Scorecard: Managing Human Capital to Execute Strategy Measuring HR’s Return on Investment
  24. 24. 7 principles for effective workforce metrics <ul><li>Answer the right questions, not all the questions . </li></ul><ul><li>Responsibility must be shared by HR and line management. </li></ul>Measuring HR’s Return on Investment
  25. 25. Business and Workforce Strategy Roles Source: The Workforce Scorecard: Managing Human Capital to Execute Strategy Line Managers Workforce mind-set Identify “A” positions/players Assess “B” players with “A” potential Developmental plans for “A” and “B” players “ C” player exits <ul><li>HR Function </li></ul><ul><li>Workforce differentiation practices such as: </li></ul><ul><ul><li>Selection </li></ul></ul><ul><ul><li>Development </li></ul></ul><ul><ul><li>Performance </li></ul></ul><ul><ul><li>Rewards </li></ul></ul><ul><ul><li>Communication </li></ul></ul><ul><li>Workforce metrics </li></ul>Measuring HR’s Return on Investment
  26. 26. 7 principles for effective workforce metrics <ul><li>Responsibility must be shared by HR and line management. </li></ul><ul><li>Take time to evaluate and adjust. </li></ul>Measuring HR’s Return on Investment
  27. 27. 7 principles for effective workforce metrics <ul><li>Responsibility must be shared by HR and line management. </li></ul><ul><li>Take time to evaluate and adjust. </li></ul><ul><li>Metrics must be founded upon the rock of communication. </li></ul>Measuring HR’s Return on Investment
  28. 28. Percent of HR execs who believe metrics in the following areas increased manager understanding of human capital’s connection to strategy. Source: The Conference Board, Measuring More Than Efficiency. 2005, January. Measuring HR’s Return on Investment 48% Recruitment 50% Turnover 50% Competencies/training 53% Productivity (revenue, profit) 59% Remuneration 60% Leadership 63% Employee satisfaction/engagement
  29. 29. Source: The Conference Board’s “Measuring More Than Efficiency” 2005 study Measurement reporting: Measuring HR’s Return on Investment 19% Report findings to all business managers 44% Report findings to senior leaders on a monthly basis 63% Report findings to senior leaders on a quarterly basis
  30. 30. Value of Measurement Management Non-Measurement Managed Orgs. Measure of Success Measurement Managed Orgs. Source: William Schiemann & Assoc. Measuring HR’s Return on Investment
  31. 31. SHRM HR Measurements Forum www.shrm.org/metrics Measuring HR’s Return on Investment
  32. 32. &quot;Each problem has hidden in it an opportunity so powerful that it literally dwarfs the problem. The greatest success stories were created by people who recognized a problem and turned it into an opportunity.&quot; - Joseph Sugarman, Author and Innovator Measuring HR’s Return on Investment
  33. 33. <ul><li>Thank-you </li></ul>A Society for Human Resource Management Presentation Measuring HR’s Return on Investment
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