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Jodi Baker

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Metrics are the key to effective business strategy

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How are the best HR functions using metrics to inform and execute business strategy? Will HR ever add value to the business strategy through its development and execution of people strategy?  If so, how will it prove it, and what are the benefits of being able to provide such proof?

We at Orion Partners decided that these questions had been vexing our clients for too long, without clear answers or guidance on how to go about using “human capital management” metrics to inform and develop the organisational and people elements of their business strategy, and monitor the execution of that strategy. This led us to conduct a piece of research to look at what companies are currently doing to measure HR’s contribution to the business strategy. This article looks at our research, sample findings, and Orion’s view of what the best companies are doing to formulate and execute strategy using metrics. We also give some ideas about how this can be replicated across all organisations.


Doing the doing – research methodology, approach and analysis

Our research methodology was created to look at four distinct aspects of the use of metrics:

  • What organisations measure;
  • How they decide on their strategy and metrics;
  • How they communicate them, use them and keep them relevant; and
  • What capabilities HR and line management need in order to make best use of metrics; mindset, skills and system requirements.

These areas were explored via structured interviews with senior HR leaders (HR directors, senior HRBPs and management information specialists, but also included some senior staff from centres of expertise, service delivery and HR IT) across organisations from a broad range of industry sectors, sizes, and geographic reach. Interview outputs were analysed to identify common patterns and clear differences among participating organisations, across all areas of focus.

The findings – in a nutshell

Overall our research validated the assumption that HR still has a way to go in terms of their consistent deployment of measures that both inform and measure people strategy – though it also highlighted some very promising progress organisations have been making in this arena. In a nutshell – our top seven findings were:

1. There are varying levels of sophistication in the use of metrics in HR, from basic monitoring of organisational health, through measuring the operational efficiency of HR, to tracking, with very specific measures the execution of the people aspects of the business strategy. Historically, HR’s use of metrics was confined to standard organisational health measures such as headcount, turnover, sickness and other absence rates, diversity metrics – what we call ‘hygiene’ measures. Beyond that, many organisations are now using ‘HR effectiveness’ metrics to measure how efficiently HR itself is performing (e.g. transactional costs, error rates, cycle times, etc). Though the best organisations do not stop there. The most evolved organisations have agreed targeted measures with the business, to enable HR and line management to monitor execution of the people strategy. Although the focus of these organisations’ people strategies and supporting measures are diverse, they all look to evaluate people strategy – looking for areas of real business improvement and evidence of goal attainment.

2. Very few organisations currently use metrics proactively to influence the formulation of the business strategy and monitor its execution. Though a few notable exceptions mentioned HR ‘stepping up’ to take the initiative to find data that will enable more informed decision-making by the organisation’s leaders, ahead of those decisions being made.  They cited using correlations between HR metrics and business performance to sell a compelling story to the leaders about the benefits of basing their business strategy on what the metrics show.  Furthermore, once execution of the strategy was underway, they discussed using new and related data to answer the question, “Did it work?”

3. The most powerful insights come from combining human capital management data with key business metrics and identifying the differentiating correlations. The research showed that HR is on a journey and that few, if any organisations are sitting on their laurels feeling they have arrived at their destination yet.  To move to the next level from wherever they are, participants recognised the need to:

•    Increase understanding of metrics and the capabilities within HR to use them
•    Engage more deeply and strategically with business leaders
•    Simplify the metrics and the methods of measuring against them as much as possible
•    Stop benchmarking for the ‘sake of benchmarking’ and
•    Align performance objectives and rewards with the people strategy and the metrics used

4. There is no one-size-fits-all and powerful metrics must be crafted by each individual organisation with intelligence, intuition and common sense to address the specifics of its business strategy.  There are some similarities in approached within industry sectors.

By their nature, participants found that strategy-related metrics must be specific, and therefore diverse. Nevertheless, there are some similarities between the survey organisations in the general principles that have worked best for them:

  • Focus on a few key measures 
  • Integrate  HR metrics tightly with other business performance review processes
  • Cascade company-wide measures down into business or local scorecards
  • Focus on the business story and the correlations, not the numbers
  • Balance ideal data with available data, be realistic, and resource the activity appropriately
  • Follow hunches and intuition in experimenting creatively with where the most powerful correlations may come from the simplest measures

5. All organisations surveyed aspire to achieving greater influence in the business and people strategy through their use of metrics. Although the metrics used are diverse, the most successful strategy-related measurement experiences discovered through the research share a common design feature.  They make clear links between the people metrics and business results that really matter to the leaders of the business. For example, “for every 1% our absence rate rises the store loses £1million in monthly takings.” Participants reported that business leaders pay greater attention when a link can be shown within their own organisation between an HR metric and one or more of their own key performance metrics. The key is to find out what measures the business pays most attention to and stands to gain the most from improving and work out what the people-related levers are that might deliver that improvement.

6. Business acumen, analytical and interpretation skills are core, but so too are relationship building, influencing, intuition, compelling storytelling and timing. Many HR practitioners do not think of themselves as “numbers people” and many lack real business acumen and ability to think in business terms.  Most participants agree building confidence in data handling and business thinking is essential and should be the first priority in equipping HR to develop their use of metrics. There is surprising agreement however, that these skills alone are not enough.  HR must also be able to build strong and influential relationships with the business leaders at all levels, gain themselves the right to a place at the strategic table, tell compelling stories about what is possible if the right people-related levers get attention and improve. Timing is also seen as critical – this is about learning to recognise the trigger events that might create more fertile soil and judging the optimal moment to introduce strategy-forming or strategy-enhancing metrics is seen as an absolute capability requirement.

7. For powerful use of metrics to exist, a fundamental belief in the value of hard measures in relation to people matters is as essential as the core skills and the systems capability to access relevant data. All participants report a continuing struggle with accessing the data they would need to take a truly creative approach to using HR metrics and analysing, manipulating and reporting that data alongside data from other functions. Many see investment in systems to improve data handling as a need.

Most strikingly, what determines the extent to which progress is being made in getting the business to define and leverage its strategy through metrics is not the state of the systems, but the state of mind of the HR champions of the cause.  Quite simply, those who believe most strongly in the value HR metrics can add to the business performance are making the most progress, irrespective of how hard they have to work to get the data, or what compromises they have to make against the ideal based on what they can get. 

Looking to the future – Orion’s point of view
So what does it all mean? Putting together all of our research findings along with experience in the design and implementation of HR and people strategies across a variety of global organisation – we at Orion Partners see 6 key messages for the balanced and successful use of more metrics in HR. These are detailed below along with our top tips for successful achievement:
 

  1. Keep it simple. Beware of the danger of wasting time working on a raft of measures that are not relevant or useful to the business in determining its people strategy or monitoring its delivery. HR needs to be judicious in selecting a few simple measures that indicate what is most important to know in relation to the people strategy, using data that is fairly easy to get at.
    Orion’s tip: Find one key measure with a strong business results correlation to begin with.  Be guided more by what you can deliver than what you wish you could.  Be creatively minimalistic.
     
  2. Tell the story. Having measures in place and regularly presenting a dashboard is not enough. HR needs to be able to correlate their data with other business performance measures and then articulate the story that the combined measures tell, in language that the business understands and in a way that motivates action. Orion’s tip: Express what the impact of improving performance against the metric will be. Pay attention to what is most pressing in your current business context and make it relevant to that.  Tell the story of what will be possible. It’s not about the process, it’s about the results.
     
  3. Invest in the skills. Ensuring an effective “in the woodwork” use of metrics requires an investment in building the appropriate skills and behaviours across the HR team – the HR Leadership, Business Partners, Centres of Expertise, Service Delivery. This investment is as important as (and probably yields a greater return than) investments in fancy technology, expensive benchmarking studies, or whizzy dashboards.
    Orion’s tip: Equip HR with business acumen and data handling skills, but look beyond this and recognise that their influencing, relationship, and storytelling skills are equally important, as is their judgement on timing.
     
  4. Change the mindset. Having a metrics-savvy HR team – and indeed “metrics specialists” – is not enough; there is a need to invest in changing line management’s perceptions about how (and indeed whether) important people and organisational matters can be insightfully illuminated by appropriate hard data.
    Orion’s tip: You cannot sell what you do not believe in, so focus on aligning HR’s hearts and minds with the value metrics can add. There will be sceptics in the business who do not believe “people measurements” count. Deal with them.
     
  5. The power of intuition. Beware of the danger of allowing a ruthless focus on numbers to kill what HR has often been traditionally good at: intuiting the “pulse” and “glue” of the organisation, knowing “how things really are round here” – an accomplishment that arises less out of an analysis of hard data and more by dint of HR’s involvement in a range of people issues via its core activities.
    Orion’s tip: Remember it’s not all about the numbers, nor are the paths to finding the right numbers to focus on obvious or straightforward.  Insights gained through “right-brained thinking” can lead to breakthrough ideas about where the true leverage points exist and what will really matter to the business next.  Do not allow an increased focus on hard data to dull your intuitive skills.
     
  6. Create a distinctive “HR metrics style”. In some ways the metrics journey for HR is mimicking what has traditionally been standard practice for other business leaders – the Head of Sales, the CFO etc. – using the power of data to engage with the Board on strategy setting and execution. HR needs to do this of course, but do so with a distinctive style and approach that melds with their strength and responsibility for sensing what we call the “pulse” and “glue” of the organisation.
    Orion’s tip: Do not succumb to the temptation to borrow financial metrics, such ROI and apply them blindly to HR.  Find your own relevant measures that inform the business, and transform the view of HR data as a valid and valuable business management tool.

Progress in the use of metrics is diverse and in many ways immature, we at Orion believe the future looks promising. Our one key take away from this research? Although the actual metrics and supporting systems are important, the extent to which HR’s mindset is metrics-enabled may be the single most important determinant of how far the potential in this field is achieved.


Jodi Baker is a senior consultant at Orion Partners, business advisors who specialise in supporting HR transformation. 

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