Human Capital Metrics: A (R)evolutionary step in workforce analytics

HR leaders are always under pressure to help their organizations manage costs, improve productivity and meet other key business objectives. If anything, these pressures have intensified this year as the global recession grinds on. 

Meeting these goals increasingly depends on having rapid access to relevant metrics and appropriate benchmarks to determine how effectively the HR function is delivering what the business needs and contributing to performance in measurable ways.

Some examples:

• What types of training, for which segments of the workforce, will yield the best results? 
• What actions will help reduce absenteeism, either broadly or within specific roles? 
• Why is turnover so high among a core group of critical talent and what’s required to retain those individuals?
• What’s the optimal mix of reward programs to boost engagement among employees to the point required to help drive stronger financial performance? 

The paralysis of data overload

These are far from academic questions, and answering them requires data – but not just “any data.” The challenge is getting the right data, having the tools to analyze the data appropriately - and using the resulting insights to drive change. To date, that’s been the exception, not the rule for most HR functions, mostly because currently available data is limited in scope, focused on the wrong things, fragmented or incomplete. 

The sheer volume is overwhelming, but quantity does not equate to quality.  Most HR managers today therefore find it next to impossible to “connect the dots” across important and interrelated areas, limiting their ability to make informed decisions about where, how and how much to invest in programs that make a difference in people’s performance. 

A framework for decision-making

Companies need better information, in a coherent framework, to quantify the value of their people-related investments relative to business outcomes. Even more critically, they need actionable insights that are meaningful for their particular industry. 

Measuring return on investment in human capital in terms of revenue or labour costs is just a starting point.  Equally important are the industry-specific productivity and financial measures that allow organizations to improve key outcomes, such as year over year sales at a retailer or patient discharge rates for a health services organization. 

Building on more than a decade of Towers Perrin research into workforce behaviour and business outcomes, we have developed a rigorous and actionable measurement framework based on connections across four critical areas:

• investments in people systems and programs (e.g., rewards programs, leadership development, performance management)
• employee behaviour (e.g., engagement, absenteeism, turnover, productivity)
• customer behaviour (e.g., customer loyalty, market share, customer satisfaction)
• financial performance (e.g., revenue growth, net earnings, share price).

By investing in the right array of rewards programs, for example, it’s possible to influence employee engagement levels and improve desired results in areas like customer service and productivity. These improvements can, in turn, encourage customer loyalty and build market share, which leads to gains in revenue growth.

Accessing the right data for your industry
Making this model real, however, comes back to having the right data to “connect the dots” and generate insights, not just statistics.  That means tying together relevant benchmarks and information in four categories:

• human capital productivity Âľ financial and industry-specific workforce productivity measures
• talent management Âľ broad group of  talent measures for key industry-specific workforce segments and the overall employee population covering topics such as attraction, retention, engagement, leadership development, wellness and safety
• total labour cost and rewards effectiveness Âľ efficiency of reward programs
• HR function performance Âľ efficiency and effectiveness of HR service delivery

Armed with this kind of information, HR managers are equipped to make better decisions about how much, and where, to invest in practices and programs that enhance workforce productivity – or, in today’s environment, where cuts in programs will have the least adverse impact. They can help drive performance consistently, from one year to the next, and become true champions of their company’s growth agenda. And they can speak about workforce investments in the business language that senior leaders and finance executives understand.

For more information on Human Metrics, please contact Keri Alletson in Towers Perrin’s Toronto office at  keri.alletson@towersperrin.com or by telephone at 416-960-4493.

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