Communicating HR’s value
| DOI | https://doi.org/10.1108/14754390780000946 |
| Date | 01 January 2007 |
| Pages | 7-7 |
| Published date | 01 January 2007 |
| Author | Theresa L Seagraves |
| Subject Matter | HR & organizational behaviour |
7
Volume 6 Issue 2 January/February 2007
METRICS
,
The latest ideas on how to approach
measurement and evaluation of HR activities
DEPARTMENTS AT A GLANCE
STRATEGIC COMMENTARY
,
Q&A
,
HOW TO…
,
PRACTITIONER PROFILE
METRICS
HR AT WORK
REWARDS
,
RESEARCH AND RESULTS
,
,
,
,
Communicating HR’s value
U
sing metrics to communicate HR’s
value to an organization is critical
to the perception of HR as a
valuable resource. What many HR
professionals miss is that how those
metrics are used in making a business
case is just as important as having metrics
themselves.
When using metrics to communicate
value, the first key to success is to
translate the metrics of HR performance
into financial numbers that directly
address the most urgent financial issues
facing the organization. This requires
knowledge of the results of HR initiatives
and of financial terms such as free cash
and debt-to-equity ratio.
What makes a good HR employee?
One example of an HR performance
result for a company I worked with was
“a 10 percent reduction in turnover as a
result of our new recruitment program.”
While executives appreciated the
turnover reduction, most didn’t take the
time to translate the reduction into the
financial impact on the organization.
Non-HR executives typically
underestimate the financial impact of HR
programs and over-estimate the time it
takes for impact to be achieved.
A successful HR executive maintains
control of other people’s perceptions by
always translating HR’s performance into
a financial impact within a specific
timeframe. A good example of
communicating this is: “Our efforts to
transform recruiting and reduce turnover
mean that we’ve have contributed an
additional US$750,000 in cost savings,
thereby reducing this quarter’s operating
expenses.”
Determining the ROI of HR
As many experienced HR executives
know, connecting a monetary figure to
an HR metric may not be enough to
prove business value. US$750,000 in cost
savings may be met with enthusiasm or
indifference, depending on the history of
the program and the timing of the
organization’s accounting cycles.
No matter how large a financial
contribution is, the lifespan of the
perception of value is limited to the
number of quarters before the
organization’s budgets are restated. This
is often the four quarters of a fiscal year.
In many large organizations, budgets are
restated every six months. In these cases,
HR’s performance results are perceived as
adding value for only six months.
Promoting HR’s continual value
How is it that HR has such a short
lifespan of value? Once any gains from
HR’s efforts are worked into the financial
projections for the next accounting
period, they can become assumed and,
therefore, invisible from a value
perspective.
Since the vast majority of what
executives talk about as financial value is
actually incremental financial value, the
ongoing contributions of existing
programs are counted as zero, or even
considered negative if no incremental
value has been gained over the previous
two budget periods.
Thus, a 10 percent turnover reduction
could equate to zero in the minds of
executives, if such a turnover rate has
already been figured into other
executive’s budgets for a significant
period of time.
How can HR manage its metrics?
It’s difficult to make gains in every area
of HR in every budget cycle. If there’s no
time to gather metrics, or not enough
resources to gather all the desired
metrics, benchmarking data can be
crucial to quickly putting metrics and
impact in context.
Investing in benchmarking studies
that show that HR’s contributions are in
line with or better than industry
averages can help protect the budgets
for programs where one can’t show
large incremental financial impact.
Eventually, however, significant financial
improvement must be shown to grow
the perception of HR’s value. This
communication should happen regularly
to educate stakeholders in HR’s value.
Systematically gather HR metrics on a
mid-quarter reporting cycle, as mid-
quarter reporting allows HR staff time to
check any last-minute numbers, translate
performance metrics into incremental
financial value and adjust the
timeframes and scale of the value to fit
each stakeholder. If the metrics are
especially sensitive, a mid-quarter
reporting cycle allows HR personnel to
privately gain support from key sponsors
before formal reports are made.
Ensure regular communication
When managing metrics, it’s not only
which HR metrics are gathered or even
how big they are. It’s also how well the
metrics are translated into incremental
value, in what timeframe and how
regularly they’re communicated that
matters.
Source:Theresa L. Seagraves & Associates,President, Theresa L. Seagraves &
Associates
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