Evaluation of HRM

1. HR EVALUATION-
UNDERSTANDING THE IMPACT OF
HRM ON BUSINESS PERFORMANCE

2. NEED
• to justify HRM existence and value of HR
function
• to demonstrate HR contribution to
organizational performance as a strategic
partner
• To provide insight into the difficulties of
measurement
• To speak in terms of deliverables

3. Definition-HR evaluation
• ‘to determine the value of HR towards
organizational goals,
• BRATTON-
‘the procedures and processes that
measure, evaluate and communicate the
value added of HRM practices to the
organization’

4. Benefits
• Assessment of the HR impact on
performance /organizational goals
• Identify the bottom line contribution
• Strength and weaknesses of HR function

5. HR Value Chain

6. Measuring the impact on business
performance
• What should be evaluated?
• How should be evaluated?
• At what level it should be evaluated?
• What are the criteria of evaluation?

7. Overview of HR Evaluation
HR EVALUATION
SCOPE
FOCUS
STRATEGIC
LINKAGE
LEVEL
OF
ANALYSIS
EVALUATION
CRITERIA
Overall effectiveness
department
professionals
practices
Reactive or proactive
strategic
management
operational
outcomes
processes
narrow

8. How to be evaluated? ( HR audit)
Practices offered by HR
dept
Professionals-
4 clusters of competencies
research
Knowledge of HR
Personal credibility
Knowledge of business
activity
Customer value
Cost/benefit
Knowledge of change process
HR dept.
Effectiveness of functionability

9. HRM and performance
• Do HRM practices make a difference to
business results?
Investment on HRM reflect with a result of
economic return
• When?
If organizations take an investment
perspective of HR

10. Investment-Oriented
Organization
• Sees people as central to mission & strategy
• Mission statement & strategic objectives espouse value
of human assets in achieving goals
• Management philosophy encouraging development &
retention of human assets
• Does not treat human assets in same ways as physical
assets

11. • WHAT ARE THE FACTORS THAT
DETERMINE INVESTMENT
ORIENTATION OF AN ORGANIZATION?

12. Factors Influencing
Investment Orientation

13. Investment Orientation Factors
• Senior Management Values & Actions
– Managers need “investment orientation”
toward people
• Attitude Toward Risk
– Investment in human resources inherently
riskier
– Human assets never absolutely “owned”
• Nature of Skills Needed by Employees
– The more marketable in skill development
employee skills, the riskier the firm’s
investment

14. Investment Orientation Factors
• Utilitarian (“Bottom Line”) Mentality
– Attempt made to quantify employee worth
through cost-benefit analysis
– “Soft” benefits of HR programs difficult to
objectively quantify
• Availability of Outsourcing
– Given availability of cost-effective outsourcing,
investments in HR should produce highest
returns & sustainable competitive advantages.

15. Researchers on impact of
performance
Decade Researcher Linkage between HRM and firm
performance
1980’s NKOMO Investment planning donot correlate with
business performance
LEWIN et al No relationship
ULRICH Correlations found on specific HR
practices and business results
1990’s YEUNG et al Alignment resulted in impact of
performance
DELANEY Relationship between progressive HRM
practices and performance in
manufacturing firms
ARTHUR High commitment-high productivity-
lower turnover than those of high
control systems
Mac DUFFIE Integrated HRM practices correlated with
high productivity in automotive
plants

16. Linkage between HRM and firm
performance- T V Rao’s model
HR
PRACTICES
•training prgram
•appraisal
•rewards etc
OTHER FACTORS
•Environment
•Technology
•Resource availabili
HR
CLIMATE
•Proactiveness
•Authencity
•Openness
•Risk taking
HR
OUTCOMES
•Employee
competency
•Teamwork
•Commitmment
•Job satisfaction
ORGANIZATIONAL
EFFECTIVENES
•Higher productivity
•More profits
•Cost reduction

17. Linkage between HRM and firm performance-
BRATTON and GOLD model
HRM
PRACTICES,
PROGRAMMES
POLICIES
SYSTEMS
OTHER FACTORS
•economy
•Technology
•industry
HR/Employee PERFORMANCE
MEASURES
•INDIVIDUAL (ABSENTEEISM
, TURNOVER ,Commitment)
•GROUP
(dynamics, processes,
performance)
ORGANIZATIONAL
Performance measures
Operating performance
(Labour productivity/
service quality)
Financial performance
• profits
•Market share
•ROI

18. MEARUREMENT PROBLEMS
• Accuracy of measurement variables
• Disconnect between what is measured
and what is important
• Financial performance measures are
tangibles and HR are in tangibles
• Influence of extraneous variables
• Difficult to demonstrate casual link

19. Trends creating the need for HR
Evaluation
High levels of competition
Need for HR Evaluation
Benchmarking
Transformation of employee contract
(Job for life is not there)

20. Measures of HRM performance
HR MEASURES EXAMPLES PROBLEMS
Efficiency Cost per hire
Time to fill
Training costs
Time taken to process grievances
Do not reflect the talent value,
fixation on cost reduction can
reject more expensive decision
options are of better value
Employee turnover % of employee leaving the firm More directly influenced by line
managers than HR managers
Staffing ratios Ratio of HR staff per 100 employees Do not indicate how efficiently the
resources have been used
Expenditure of resources Cost of HR function Using fewer resources do not always
suggest efficiency in utilization
Level of activity Benchmarking
Number of people hired
Number of people trained
No way to know if organization’s
need are met
Employee attitudes Satisfaction surveys More directly influenced by line
managers than HR managers

21. Indicators of
effectivenes
s of HR
practices
 HR
Planning
 Staffing
 training
Extent to which organization must
hire in the open labor market,
speed of filling up of positions
internally by qualified
candidates
Cost per hire, number of resumes
received
Annual cost of training
More directly
influenced by line
managers who
prepare sub
ordinates for higher
positions
Influenced by factors
other than HR
function
May not be related to
training need for
identification and
hence performance
improvement

22. Summary of HR practice measures
HR Practice Possible Measures
Staffing  Acceptance per offer ratio
 Number of applicants contacted compared with those
reporting for job interview
 Time to fill a job
 Cost of filling a job
 Percentage of internally filled jobs
 Performance of hired applicants
 Ratio ob backup talent (number of prepared backups in place
for top jobs)
Training and
development
 Cost per trainee hour
 Percentage of employees involved in training
 Number of courses taught by subject
 Payroll expense per employee
 Time for new programme design
 Number of training days and programmes held per year

23. Summary of HR practice measures
Performance
appraisal
 Acceptance of appraisal process by employees
 Percent of employees receiving performance appraisal
 Average merit increase granted by performance
classification
 Extent of which measurement systems are seen as credible
Safety and health  Lost work days
 Cost of injuries
 Incidence of injuries
 Trends in workforce illness
HR professionals  HR competencies
HR function  Ratio of total employees to HR professionals (measure of
productivity)
 Ratio of rupees spent on HR function to total sales
 Administrative costs (efficiency of HR function)
 Performance against the annual HR department budget

24. Three clusters of HR Measures
HR Measures
Internal operational
measures
Internal strategic
measures
External strategic
measures
•Traditional
•Focus on
efficiency, quality
of services, speed of delivery
•Appropriate when
HR is seen as cost centre
Assess effectiveness
of HR Practices
in building
organizational capabilities
Focus on effectiveness
of HR Practices
obtaining satisfaction
of key external
stakeholders
Process
Measures
(cycle time,
Cost of HR
Practices,
quality
Outcome
Measures
(level of
training
Evaluation,
Job offer
accept
Ratios)
Organizational
capabilities
Employee
satisfaction
Change in
Customer
satisfaction
Share holder
satisfaction
(ROA)

25. Approaches to HR Evaluation
• The productivity of any function can be
measured by some combination of cost,
time, quantity or quality indices.
• These approaches of HRM measurement
aims to demonstrate the relationship
between HRM and organizational
outcomes and to use this understanding to
improve the quality of HR decisions,

26. General approaches to HR Evaluation
Approaches to HR evaluation
Stakeholder/Audit Approach Utility/Analytical Approach Business Consulting Approach
Focus To determine the satisfaction of
key users with HR services
Cost benefit analysis, and
determining financial utility
of HR services
HR functions as a strategic
business unit and helps
customers achieve
maximum value from HR
products and services
Criteria of HR Effectiveness Employee satisfaction surveys;
Perceived effectiveness of
HR; Absenteeism rate; Cost
of HR as a percentage of
sales; Average number of
days taken on hire an
employee
Asset method:
Value of employees (cost of
training/total number of
employees)
Expense model:
Economic effects of employee
behaviour like absenteeism,
turnover, etc.
Economic profitability:
Employee’s contribution to the
firm’s performance (reward
programme that improves
productivity)
Cost benefit ratio:
Comparing benefits of HR
practice to cost of delivery
(ROI)
 HR reviewed as profit
centre
 Quantitative measures:
decrease in turnover
translated in financial terms
to determine money value of
training benefits
 Qualitative measures :
changes in employee
satisfaction index

27. Contemporary approaches to HR Evaluation
• Balanced scorecard
• HR scorecard
• Benchmarking
• Business Excellence Model

28. Balanced scorecard
• It is a resultant of the dissatisfaction of traditional
financial measures for measuring the performance
• Kaplan and Norton
• Based on stake holder approach
• According to it , if a business is successful it is
considered that the three stake holders of business are
satisfied- customers, investors and employees
• Measurement
-investors: financial performance, profits, market value,
cash flow
-customers: market share, customer retention and
commitment

29. Employee measures through balance
scorecard
- productivity= output/input or output/total
no. of employees
- People= turnover, absenteeism, employee
commitment, satisfaction
- Process= linking employee perception of
leadership to a manager’s salary
increases

30. HR scorecard
• It measures the effectiveness and efficiency of
the HR Function in producing those employee
behaviours that are important for a firm to
achieve its strategic goals
• It shows the metrics used by the organization to
measure HR activities as well as employee
behaviour
• Provides the link between HR activities,
employee behaviour and resulting organizational
outcome and performance

31. Creating strategically resulted HR system –
steps in using HR scorecard
• Defining business strategy
• Outline the value chain of the company
• Identify strategic organizational outcomes
• Identify required workforce competencies and
behaviour
• Identify relevant HR systems and practices
• Design HR scorecard measurement
• Periodically evaluate the measurement system.

32. Benchmarking
• It denotes a comparison of selected
performance indicators of an organization
with those from different organizations,
typically in the same industry, or with
comparable organizations that are
considered ‘ best in class’

33. Benchmarking – Purposes
• Self-audit
• Learn from others
• Tool to create motivation to change
• Helps provide focus and set priorities for
HR manager
• To assess improvement in HR
competencies over time

34. Identify HR practices to be benchmarked
Identify the team members of the
benchmarking exercise
Identify the benchmarking partners
Against whom benchmarking will be done
Collect data from benchmarking partners
Analyze and interpret data
Prepare a written report of the findings
Determine performance gaps
Develop action plans
Benchmarking partners
( other relevant firms)
A
B
C
THE BENCHMARKING
PROCESS

35. Business Excellence Model (BEM)
• It is designed to assist organizations achieve
excellence through continuous improvement in
the management and development of processes
to encourage a wider use of best practice
activities.
• The model assess the quality of performance of
the organizational processes relative to previous
years and to competitors or benchmark
organizations.

36. BEM uses seven criteria to evaluate performance
• Result orientation
• Customer focus
• Leadership and constancy of purpose
• Management by processes and facts
• People development and involvement
• Partnership development
• Public responsibility

37. • TATA Business excellence model
• It uses MALCOLM BALDRIGE CORE
VALUES
• 11 core values for high performing
organization

38. MALCOLM BALDRIGE CORE VALUES
• Visionary leadership
• Customer centered
• Organizational and personal learning
• Valuing staff and partners
• Agility
• Focus on the future
• Managing for innovation
• Management by fact
• Public responsibility and citizenship
• Focus on results and creating value
• Systems and perspective