Journal of Business Management & Social Sciences Research (JBM&SSR) ISSN No: 2319-5614 Volume

2, No.9, September 2013

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HR Metrics: A Benchmarking Towards Excellency

Mr. S.A. Hussain, Sr. Asst. Professor, Miracle School of Management, Miracle Educational Society Group of
Institutions, Andhra Pradesh, India
Dr. O. Narayana Murthy, Professor, Miracle School of Management, Miracle Educational Society Group of
Kongavani Palem, Bhogapuram, Andhra Pradesh, India
Abstract
Globalization and changing business dynamics presently increasing challenges to HR and line management on
how best to develop and deploy an agile and highly-competency workforce while maintaining cost efficiency.
HR metrics are a vital way to quantify the cost of HR and the impact of employee programs and HR processes
And measure the success (or failure) of HR initiatives. They enable a company to track year-to-year trends and
changes in these critical variables. It is how organizations measure the value of the time and money spent on
HR activities in their organizations. Metrics provide a number of factors that can be measured to show how HR
contributes to the business. Some important Measures such as absence rate, health cost per employee, and HR
expense factors show that HR has a sense of the importance of human capital measurement in supporting our
business objectives. The following calculators are basic HR and business metrics to help measure your
company’s absence rate, cost per hire, the value of your human capital and human capital return on investment.

Keywords: HR Metrics and its significance, Objectives & Strategies, Global Human Resource Metrics, Human
Resource Information System (HRIS)

Introduction from HR and operational systems across the

In the past, Human Resources (HR) was viewed as
an administrative function where decision-making
was usually based on prior experience, feelings, or
intuition. However, as a result of new technology,
global markets, and rapidly changing business
needs, the HR professional must develop the ability
to make dynamic decisions. Decisions are based on
the data developed through the use of metrics that
measure the quality, quantity, cost, and
effectiveness of HR programs. Metrics measure
turnover, the cost of hiring of a new employees,
and the effectiveness of the compensation
programs in increasing employee performance.
Metrics provide the data the HR professional needs
to communicate with the management and have a
real impact on driving the change that will move
the company to fulfill the desired objectives.
Globalization and changing business dynamics at
present increasing the challenges to HR and line
management on how best to develop and deploy an
agile and highly-competency workforce while
maintaining cost efficiency. Today‟s business
challenges demand more than just greater
efficiency in the HR department and an HRM
system. Rather, they require increased effectiveness
gained through a comprehensive understanding of
the factors driving workforce performance.
Organizations need to understand the complex
interaction between staffing levels, competencies,
compensation structures, workforce profile, and
other factors to help them maximize their return on
human capital.
To fully understand how workforce factors affect
the business requires timely and integrated insight
enterprise to interpret the right measures aspect.
Literature Review
In the words of Abrahamson (1991) HR metrics
create value to the degree that they improve more
decisions, that the decision improvements have
significant value, and that the cost of the metrics.
According to Boudreau (1996) noted that HR
metrics create value (or harm) according to their
effects on key constituencies.
Pfeffer (1996) proposed that organizations
"occasionally do dumb things," specifically failing
to adopt people management practices that
evidence seems to suggest help to achieve strategic
objectives.
Kaplan & Norton (1996) propose that HR metrics
are not simply an evaluation tool, or a method of
justifying HR investments. Rather, they represent
the operational expression of the theory of how
people contribute to organization success and the
HR investments that lead to that success.
Treacy & Wiersema (1997) noted the role of
“strategic reference points” in framing how
decision makers evaluate strategic options. Thus,
the metric chosen may well influence the strategic
response. Barringer and Milkovich (1997) reported
that employees and employers prefer secure,
longer-term contracts when the work environment
is risky and uncertain. The principle of focusing on
the key constraints may provide value as an
indicator of which of many “fit” patterns may be

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Journal of Business Management & Social Sciences Research (JBM&SSR) ISSN No: 2319-5614 Volume
2, No.9, September 2013
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most strategically useful. By beginning with the
strategic linkage concept metrics theory can
identify measures that reflect the most important
organizational processes.
Importance Of HR Metrics
It is vital to show HR‟s impact on the organization
because of the cost and importance to productivity.
The HR department should be run like a business in
itself. HR metrics are classified in three key
categories: past, present, and future expectations,
for comparison and forecasting. If there is no past
information available, the organization should be
use the best practice information or that of a similar
company.
Enables companies to more effectively manage and
improve business performance by Improving
overall profitability through more effective
workforce cost control. Managers can understand
how to optimize staffing levels to ensure
satisfactory delivery of service while maintaining
the lowest effective headcount. They can also
understand the impact of paying overtime to the
existing versus adding new workers on overall
profitability also providing HR, executives and line
managers consistent and integrated talent insight to
better manage workforce performance and
capabilities. HR and business leaders can gain
visibility into top or bottom-performing employees
and internal mobility to better develop and retain
key talents, understand the impact of workforce
turnover on performance and costs and proactively
identify and remove retention trouble spots.
Need For Measuring HR Metrics
The below mentioned categories should be directly
linked to the business goals, which varies from
Organisation to Organisation i.e., Employee
Productivity, Employee Attendance, Employee
Engagement, Communications, Turnover,
Recruiting Efficiency, Rewards System and
Measurement and Retention are the main
categories for measuring HR‟s ability to maintain
employee functions that meet with the overall
business plan.
These categories can make and process in terms of
employee productivity, employee attitudes, and
goals met, and employee skill levels are measured.
Productivity can easily be measured against
established guidelines from previous records, or in
the case of a new company, industry standards.
Employee attendance includes tardiness and
absenteeism. Employee engagement describes
whether or not employees are pleased with their
supervisors, co-workers, their tasks and schedule.
Higher levels of engagement typically indicate
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longer employment periods and higher levels of
productivity. One metric used to describe
workforce productivity includes the percentage
improvement in workforce productivity over prior
years, and the currency value of that
productivity. The rest of the measures are related to
HR management functions and should be compared
to the results of the three employee measures.
Communications refers to how accurately and
promptly information is relayed to employees, and
the number of HR transactions within a given
period of time, such as posting positions,
mediations, and legal issues (Workers‟
Compensation, Unemployment hearings).
Recruitment is one of the HR‟s main
responsibilities. Recruiting efficiency describes
how many new positions were created versus sheer
turnover, and the process for staffing personnel.
One way to assess the effectiveness of recruiting is
to take the average performance appraisal score for
a certain position, of newly hired employees, and
compare it to the previous years‟. Another is
management satisfaction with these new
employees, determined through surveys. The
turnover rate of these new employees within the
first year also is usually a good metric to measure.
Turnover relates to both voluntary (quitting) and
involuntary (lack of performance, layoff) employee
loss.
The reward system analyses how the employee
productivity is rewarded (raises, awards, rewards),
and the measure is weighted, with better
performers being ranked as more important than
worse performers. These indicators can be placed
in the performance review. Rewards are set to help
with retention, which is the company‟s ability to
properly train, keep and promote employees while
also participating in succession planning for the
higher-level positions. Useful metrics in this
category include a performance-based turnover
metric, especially for key positions. Management
satisfaction with HR efforts regarding retention,
determined through surveys, may also be a useful
metric to monitor. To conduct a measurement, base
employee expectations and observations (via
employee productivity, attendance and
engagement) against what HR measures are
expected in terms of communications, turnover
figures, recruiting policy, ability to retain (retention
percentage), and the reward system.
Objectives & Strategies Of HR Metrics
The main object is the cost of employee and H.R
process to measure the success or failures of the
objectives. Human resources practices have direct
impact on general business performance. Typically,
the most significant HR practices are viewed from
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Journal of Business Management & Social Sciences Research (JBM&SSR) ISSN No: 2319-5614 Volume
2, No.9, September 2013
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6 perspectives: rewards and accountability;
collegial, flexible administration; recruiting and
retention excellence, communications integrity,
dedicated HR service technologies, prudent
application of resources. Most of the research
analysis has shown a strong correlation between
these practices and a 30% increase in shareholder
value. HR strategy should be linked to the business
goals and objectives. When creating effective HR
measurements, an organizational management
should consider whether each set of HR metrics
contributes to its business performance and
provides an insight into productivity assessment
and resource appraisal which leads to efficiency
gains and customer experience improvement.
Typically, HR metrics are classified in three key
categories: historical, real-time and forward-
looking. HR strategy should specify the starting
point of business development in order to assess
the motivation and future impact of the changes in
the HR profile and general business structure. To
evaluate the business development, the HR can
either use its own historical data or benchmark its
organization against other similarly sized
businesses or industry „best of breeds‟.
HR analysis requires the allocation of specific
resources. It is essential to implement periodical
assessment of HR performance without interfering
with existing business procedures. Most companies
prefer to employ dedicated technology to optimize
the data collection. Besides, the HR report should
be presented in comprehensive and clear format.
For instance, graphical representations with short
textual summaries provide for better accessibility
and readability of the HR data. The HR report may
also be presented in a form of HR scorecard as
sources, which is relevant not only to HR
professionals, but also organizational management
and employees. Many metrics are available in
Table - 1 Human Resource Metrics & Its Impact
HR Metric How to Calculate it
No. days absent in month) ÷ Ave.
Absenteeism Rate no. of employees during mo. x no.
of workdays x 100
(Advertising + Agency Fees +
Cost Per External Employee Referrals + Travel cost
Hire of applicants and staff +
Relocation costs + Recruiter pay
and benefits) ÷ Number of Hires
HR expense HR Expense ÷ Total operating
Percent expense
Percentage of Number of employees trained ÷
Employees Trained Total employee headcount
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different areas of HR functions i.e., (Health care
costs per employee, Human capital return on
investment, turnover costs, workers compensation
cost per employee etc.) and its impact on the
organization.
Management ultimately judges the human resource
function based on whether it creates value for the
company, where “value creation” means
contributing in a measurable way to achieving the
company‟s strategic goals. We‟ve seen that human
resource managers create value by engaging in
activities that produce the employee behaviors the
company needs to achieve these strategic goals.
The HR Score Card is a concise measurement
system, often summarized on a computer screen in
a “digital dashboard”. It shows the quantitative
standards or “metrics” the firm uses to measure HR
activities, and to measure the employee behaviors
resulting from these activities, and to measure the
strategically relevant organizational outcomes of
those employee behaviors.
To create an HR Score card, the manager needs
three types of information. First, he or she must
know what the company‟s strategy is, because the
strategy will determine what the important
employee behaviors and strategically important
organizational outcomes are, and how the firm will
measure organizational performance. Second, the
manager must understand the causal between the
HR activities, the employee behaviors, the
organizational outcomes and the organizational
performance. Third, the manager needs metrics he
or she can use to measure all the activities and
results involved, specifically the HR activities, the
emergent employee behaviors, the strategically
relevant organizational outcomes, and the
organizational performance.
Impact on the
Description
Organization
Measures absenteeism On Production
Costs involved with a new
hire Productivity
HR expenses in relation to
Total Cost of the
the total operating
product
expenses of organization
The number of employees
Increasing efficiency
receiving training as a
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2, No.9, September 2013
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Number of employees exiting the
Turnover Rate
job ÷ avg. actual No. of employees
(Annual)
during the period x 12 ÷ no. mos.
in period
A Strategic Approach To The
Measurement Of Global HR
MNEs are facing many complex HR issues and
sometimes conflicting pressures for global
integration and local differentiation. For MNEs,
there are specific and unique challenges related to
the development of talent, as part of a strategic
Approach to HR. Achieving a balance between
global co-ordination and local Responsiveness
(differentiation) is important. This balance may
vary depending on the strategic context, resources
and processes, and pivotal talent that are relevant in
a particular situation. Global HR typically includes
all HR programs conducted in MNEs across
national borders. These may include global shared
services, worldwide training programs, expatriation
programs, and so on. Research and practice in
global HR has largely focused on the management
of expatriation, although there is increasing
recognition of the need for strategic decision-
making about global HR.
Global HR management requires a flexible
measurement framework to fit a great variety of
situations, because managing across national
boundaries requires attention to and measurement
of additional context and boundary conditions. The
involvement of HR managers in strategic decision-
making is important. However, research in MNEs
has noted that leaders of non-HR functions may be
reluctant to include the global HR function in
strategic decisions, arguing that HR specialists
often complicated decision-making. Although
making decisions relating to people is more
difficult and complex, this aspect of decision-
making is critical and it is likely to affect not only
HR policies and practices but also overall
organizational performance. We argue that there is
an imperative for global leaders to rigorously
incorporate talent into their strategic planning and
decisions. For HR to contribute to that process
requires sophisticated measures that are clearly and
logically linked to the key competitive concerns of
strategic leaders, business managers and key
constituents.
Three key challenges are important for the
measurement of global HR programs:
1. Global-local Balance:
MNE management must focus simultaneously on
global performance (the whole of the MNE) and
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percentage of total
employee headcount
This measures the rate for
which employees leave a
Cost of Hiring
company
subsidiary or regional performance (the parts).
MNEs require generic measures that make sense
across global operations, complemented by specific
measures able to detect subtle differences among
locations.
2. Comparability of Data:
Performance evaluation data obtained from one
subsidiary/region may not be comparable with that
obtained from another due to local differences. It
is important to decide which data are comparable
and which are unique.
3. Geographic Dispersion:
Separation by time and distance complicates
judgments about the degree of fit between
subsidiary performance and the long-term strategy
of the MNE. With regard to global HR, distance
may hamper connections between HR programs
and organizational performance or even prevent
such connections from being made. MNEs require
measures that are not only financial but also a
balance between long- and short-term orientation,
rather than a short-term focus on profits, may be
required.
Human Resource Information System
(HRIS) And Metrics
Human Resource Information Systems (HRIS)
have been used in HR departments for many years,
but more recently their use has completely changed
to that of playing a more strategic role to support
HR workers, in particular HR managers for various
information. The job contents and the expectations
from HR managers have changed over the last a
few years, with functional and strategic pressures
ever growing on them. Thus, Human Resource
Information System provides a method, by which
an organisation collects, maintains analyses and
reports the information on people and jobs
whenever and where ever it is necessary. The
information contained in the HRIS serves as a
guide to recruiters, trainers, career planners and
other human resource specialists. At the same
time, top management and HR should have
integrated information system that gives them a
bird‟s eye view of their employees‟ career interest,
progress, rewards, appraisal results and succession
planning process. It has already been noted that
without information, it is very difficult to initiate
the planning process and measuring any function of
HR.
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Journal of Business Management & Social Sciences Research (JBM&SSR) ISSN No: 2319-5614 Volume
2, No.9, September 2013
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The use of Human Resource Information Systems
(HRIS) has been advocated as an opportunity for
human resource (HR) professionals to become
strategic partners with top management. The idea
has been that HRIS would allow for the HR
function to become more efficient and to provide
better information for decision-making and for
measure by HR people in different functional areas.
HRIS is a system used to acquire, store,
manipulate, analyze, retrieve and distribute
pertinent information about an organization‟s
human resources. It is often regarded as a service
provided to an organization in the form of
information and it can help for measuring.
Conclusion
HR Metrics are too often tactical and fraught with
incompatibilities among far too many measures.
Instead, HR measures should be a clearly linked
with business goals which in turn production,
productivity and profitability of the enterprise. No
doubt HR metrics plays a magnificent role and a
fruitful area of research would reflect the impact of
HR metrics on key decision makers and can result
to bench marking.
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