It’s accepted that HR should act as a strategic partner to the business, but day-to-day reality falls short of this ideal for many organisations. John Stokdyk investigates why HR has been slow on the uptake and hears why HR reporting may soon be rising up the executive agenda.

Strategic HR has become a mantra for HR managers, according to SAP’s in-house blogger and chief solutions architect Thomas Otter, who constantly encounters comments along the lines of:

Yet in the UK, practice is lagging behind the management theories. Ask most HR managers about their reporting regimes and those who are on top of their admin systems will be able to deliver headcounts, sickness and absence reports and monthly payroll totals. These reports represent perhaps 5-10 per cent of the capabilities of the typical integrated HR software system.

From his experience with SAP, Otter detects a cultural reluctance among UK managers to get to grips with HR reporting. In contrast to the Scandinavians and Germans, Otter says: “The UK tends to have an opportunistic approach to HR stuff. They tend to be relatively good at driving cost savings, but seem to be less focused on more long-term HR stuff such as succession planning, work-life planning and the HR element in financial statements.”

Picking up Otter’s challenge, this article will examine this reluctance to embrace strategic HR reporting tools and identify some of the factors that may force HR managers to start practising what they preach.

For HR managers, being able to model the cost implications of people-related decisions and come up with sensible scenarios that answer executive queries has some very tangible benefits. As Otter puts it in his blog: “If marketing can build a business case for sticking a logo on a Formula One car, then it is high time that HR got over their analytical aversions and start to argue coherently for effective HR investment.”

Otter has an ally in the Evil HR Lady, a blogger who works with a US-based Fortune 500 company. “For HR to add value we need to speak the language and be able to state our case,” she writes.

“We often get in scuffles with finance because training, development and benefits all cost money. When we give in because the CFO says, ‘That’s too expensive,’ we have cooked our own goose. Before we propose we need to have the figures that will show how it will save money in the long run – lower turnover, higher productivity, etc. If we can’t show that, we have no business making the proposal in the first place.”

Why don’t HR managers embrace better reporting?

In the CIPD’s recent survey of 800 senior HR professionals, 38 per cent identified “dealing with skills gaps” and 35 per cent cited “ineffective technology” as barriers to becoming more strategic.

Lack of the necessary skills, or inadequate training could explain why some HR managers shy away from providing more pro-active reports and analysis, but there is also an element of fear that surrounds increasingly powerful HR systems. Giving employees and managers self-service access to their personal data and performance reports makes certain HR roles redundant.

But Laurence Collins of high-tech analytical software house activ8 sees a cultural shift taking place. “After years of debate about HR being a valued strategic partner, managers are beginning to sense the wisdom of strength in numbers (the interger kind).

“HR has a wealth of data at its disposal, but is just not applying analytic power. We’re pushing HR to be braver and more confident about pushing out numbers. Traditionally HR has waited to be asked for a statistic or number rather than systematically monitoring its own scorecards and outputs.”

With a new application to promote, Collins also bemoans the quality of existing HR reporting tools, which he characterises as being either too inflexible to provide meaningful management intelligence, or too expensive and complex. Bettina Pickering of PA Consulting Group supported this view in a recent HR article, pointing out that HR measurement and analysis should be a fundamental part of corporate performance management (CPM), but that HR-specific measures and reports were not always well supported within CPM suites from the likes of Cognos, Business Objects and Microsoft.

Strategic HR measures

Following is a short digest of suggestions from contributors to this article:

Research into HR and HCM measures in the UK was stimulated by the 2003 ‘Accounting for People’ task force report (aka the Kingsmill Report). For more detailed analysis, see the 2006 CMI/CAHRR study Measures of Workforce Capability and its predecessor ‘Getting the Basics Right’ (2005) available from the CMI research report website.

What should you be trying to report?

Attempts to define measures that matter to specific businesses, yet remain comparable across companies and industries, have ended in frustration, as previously reported on HR Zone.

There are two areas of focus – measuring whether the HR function is doing a good job and adding value; and metrics to assess people’s contribution to the organisation’s overall performance. Randal Tajer of Tajer Pearson and Associates explains that older measures such as return on human capital, where people-related expenses were extracted as a hard cost, or employee value measures based on revenue or profit per employee, are falling out of favour. Companies such as RBS and B&Q are using models that correlate people metrics against performance. “But by the time you get through the complexity of the model, it can all have changed,” he says.

A recent Hay Group/Henley Management College study found that combining performance measures with a focus on development was likely to produce better results than easily quantifiable measures that based on bottom line measures such as profits, growth and operational excellence. “The most admired [companies] have created performance management systems that take a more rounded approach including measures on teamwork, long-term thinking, building human capital, development and managing talent and customer loyalty,” says Hay Group’s Dilum Jirasinghe.

One of the factors that is changing the managerial climate is a sudden surge of executive interest in human capital risks, if a recent study from the Economist Intelligence Unit is to be believed. The most significant threats identified by international risk managers related to HR issues such as skills shortages, losing key personnel and succession problems. Having identified the problem, just under a third of respondents said they were managing human capital risks effectively. With the issue shooting up the corporate agenda, the report’s authors saw a need for closer integration between risk management and HR, and clearer understanding of the underlying risks.

This understanding will come from well thought out measures and accurate reports. According to COA’s Chris Hands, learning to embrace its inner nerd will help the HR profession to fulfil this need. “Don’t forget to hire some geeks when you’re recruiting HR professionals,” he told an audience at this year’s HR Software Show.

“We can help you crunch the numbers to come up with statistical correlations. Experience shows that this is what successful organisations are doing – matching data to where the business is going. In my experience, successful HR professionals are ones who take ownership of people performance.

“Often HR people are asked to come up with a plan and they’re very good at producing discussion documents. But often what CEOs want are hard numbers and metrics. You can start to bring technology to bear to make it more do-able.”

A note of caution This article set out to provoke readers to consider their HR reporting needs and reflect current thinking on the subject. Please note that many of the suggestions come from consultants and software houses that have a vested interest in promoting automated reporting technologies. HR Zone columnist Quentin Colborn points out that many applications may be over-specified and are often driven more by suppliers’ priorities than the users’ needs and capabilities. Before talking to potential suppliers, develop a clear and realistic view of your reporting needs and ensure that any proposed solutions match your specification.