As the best companies to work for tend to have a better return on investment, what does this mean HR should do with regards to measuring the value of their policies? Jan Hills discusses measuring success in your organisation.

There has been much debate about the measures HR should be using to demonstrate whether their policies and initiatives are creating value for the company.

Some recent research by Professor Alex Edmans at Wharton suggests it may not be so difficult to implement valuable measurement strategies. He shows that firms listed in the top Fortune100 firms to work for in the US outperform others by creating a return on investment of 14% compared to 6% for those not listed. Meaning that employee satisfaction must have a bearing on the bottom line.

This is a great opportunity for HR to measure their return in a meaningful way and provide the evidence that intangibles can create a real difference in performance within the company.

It is always difficult to place an empirical value on intangible successes, yet this is inevitably the measure that finance directors and company boards are looking for.

If, as Professor Alex Edmans argues, the best companies to work for have a better share price then this is a golden opportunity for HR to provide hard numbers as evidence of value. Edmans admits that his study cannot isolate the factor that creates this increased return, whether it is down to employee satisfaction or to the good management that creates that satisfaction. But he points out that does not really matter.

This external measure of employee satisfaction is a guide to the importance of intangibles, and so inclusion on the Fortune list should be an indicator to investors of the quality of the return you can expect from the firm. And with the rise in popularity of employee engagement surveys/best place to work tables, there is no reason why we can’t use these measures in the UK.

The modern firm

It is the trend that this research indicates what should be of most interest to HR people. Overall, Edmans’s research is part of a broader shift among academics to develop new theories focused on the modern firm. “When I was at Morgan Stanley, we would value firms according to their tangible assets, cash flows and earnings – which is common across most of Wall Street and much existing academic research,” he says. “But nowadays, significant components of a firm’s value cannot be captured by accounting numbers.”

But as well as using employee satisfaction as a measure, customer satisfaction might also be a useful tool in measuring HR. In his recent book, ‘The Ultimate Question’ focussing on customer service, Fred Reicheld’s premise is that if your customers like your service enough, they will recommend you to friends and colleagues. Therefore all you need to know is whether your customers like you and will therefore do this.

Reicheld’s research suggests that only customers who love a product or service will recommend it, but, that when they do companies increase profits, cut marketing costs and build their brand. They also suggest two simple approaches:

• First you need to ask one simple question and one question only: “Would you recommend us to a friend or colleague?” They maintain that supplementary questions only annoy and confuse the customer and deflect attention away from improving the customer experience. They do however suggest that you ask anyone who says ‘no’ why they wouldn’t.




• Secondly, to find your customer satisfaction score, subtract the number of people who report they would not recommend you from the number of people who say they would.

If you apply this to HR, you could ask your internal clients whether they would recommend your service and advice to their colleagues. What would they say? How many of them would be promoters (answering yes) and how many detractors (answering no). And if you asked the detractors why, what would they say about how you need to change the service and advice for them to become a promoter? Try it out and see what results you get.

Once you have gathered information about both employee and customer satisfaction, it is vital that you present the data in a way that is recognisable to the receiver. In addition to simply presenting the data, you might also try presenting the story behind the data.

Think about how you might tell the story in a way that’s relevant and engaging to your internal client or board and present it on their terms rather than on HR terms.

When designing your presentation think about the case you would like to make and the conclusion you would like your client to reach. This doesn’t mean you should manipulate the data, but it does mean being mindful of what you present and how you present it in order to achieve the best outcome.

Jan Hills is from HR consultancy HR With Guts.