Connecting Measures and Organization Effectiveness2
Hitting the "Wall" in HR Measurement
Type "HR measurement" into a search engine and you will get more than 900,000 results. Scorecards, summits, dashboards, data mines, data warehouses, and audits abound. The array of HR measurement technologies is daunting. The paradox is that even when HR measurement systems are well implemented, organizations typically hit a "wall." Despite ever more comprehensive databases, and ever more sophisticated HR data analysis and reporting, HR measures only rarely drive true strategic change.3
Figure 1-2 shows how, over time, the HR profession has become more elegant and sophisticated, yet the trend line doesn't seem to be leading to the desired result. Victory is typically declared when business leaders are induced or held accountable for HR measures. HR organizations often point proudly to the fact that bonuses for top leaders depend in part on the results of an HR "scorecard." For example, incentive systems might make bonuses for business-unit managers contingent on reducing turnover, raising average engagement scores, or placing their employees into the required distribution of 70 percent in the middle, 10 percent at the bottom, and 20 percent in the top.
Reprinted by permission of Harvard Business School Press, from Beyond HR: The New Science of Human Capital by John Boudreau and Peter M. Ramstad. Boston, MA, 2007, pp. 189. Copyright © 2007 by the Harvard Business School Publishing Corporation. All rights reserved.
Figure 1-2 Hitting the "Wall" in HR Measurement.
Yet, having business-leader incentives based on HR measures is not the same as creating organization change. To have impact, HR measures must create a true strategic difference in the organization. Many organizations are frustrated because they seem to be doing all the measurement things "right," but there is a large gap between the expectations for the measurement systems and their true effects. HR measurement systems have much to learn from measurement systems in more mature professions such as finance and marketing. In these professions, measures are only one part of the system for creating organizational change through better decisions.
Many HR measures originate from a desire to "justify" the investments in HR processes or programs. Typically, HR seeks to develop measures to increase the respect for (and potentially the investment in) the HR function and its services and activities. Contrast this with financial measurement. Although it is certainly important to measure how the accounting or finance department operates, the majority of financial measures are not concerned with how finance and accounting services are delivered. Financial measures typically focus on the outcomes—the quality of decisions that affect financial resources. In contrast, most HR measures today focus on how the HR function is using and deploying its resources, and whether those resources are used efficiently. To the extent that the HR organization is ultimately accountable for improving talent decisions throughout the organization, HR professionals require a more holistic perspective on how measurements can drive strategic change.
Correcting these limitations requires keeping in mind the basic principle expressed at the beginning of this chapter: Human capital metrics are valuable to the extent that they improve decisions about talent and how it is organized. That means that we must embed HR measures within a complete framework for creating organizational change through enhanced decisions. We describe that framework next.