Chapter 14—HR Assessment and Analytics Strategic Human Resources Planning, 7e

CHAPTER 14
HR Assessment and Analytics

Student Study Notes

Workforce Analytics

HR analytics is an evidence-based approach for making better decisions about employees and
HR policies, using a variety of tools to report metrics and predict outcomes of HR programs.
• Focuses managers and employees on what is important to the organization.
• Motivation to measure is driven by the need to improve results.
• Allows review of turnover and employee engagement.

The Importance of Evaluating HRM

• HR managers need to be able to talk about the contribution and value of HR activities in the
numbers and language of business.
• The HR department is like an operational unit and is subject to questions about its
contribution to organizational performance.
• Some HR managers resist measuring their work because outcomes such as employee
attitudes or managerial productivity seem difficult to calibrate meaningfully.
• Another reason is that some HR professionals have limited knowledge of measurement
models and limited skills in measurement design.
• The challenge is to develop measures that are important to the organization, not just to the
HR function.

Resistance
1. Only 6% of HR managers interviewed felt that they were effective using data to make
decisions.
2. Measurement can be expensive but can save costs afterward.
3. The need to measure is fuelled by:
1. Business improvement efforts across organizations.
2. Attempts to positioning HR as a strategic partner.
3. The need for objective indicators of success.

Rationale
1. Labour costs are often a firm’s largest controllable cost.
2. Managers recognize that employees make the difference between success and failure.
3. Organizations have legal responsibilities to ensure compliance with laws governing the
employer‒employee relationship.
4. Evaluations are needed to determine which HR practices are worth measuring and
benchmarking.

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Chapter 14—HR Assessment and Analytics Strategic Human Resources Planning, 7e

5. Measuring and benchmarking HR activities will result in continuous improvements.

Performance gaps can be eliminated.
6. Audits will bring HR closer to the line functions of the organization.
7. Data will be available to support resource allocations.
8. Investors want this information. Why? The market-to-book ratio suggests that for every $6
of market value, only $1 appears on the balance sheet.

The 5C Model of HRM Impact

1. Compliance.
2. Client satisfaction.
3. Advantages of measuring Client Satisfaction.
4. Methods of measuring Client Satisfaction.
5. Problems with measuring Client Satisfaction.

Compliance
Ensure that organizational practices comply with the law in areas such as:
1. Employment standards
2. Employer/employee relationships
3. Health and safety
4. Employment equity
5. Industrial relations

Client Satisfaction
• Stakeholders include external and internal clients who interact with HR.
• Surveys are used to get feedback.

Advantages of Measuring Client Satisfaction

• Measuring client satisfaction reminds the HR department that it provides a service to the
clients and must meet their expectations.
• Surveying clients about their unmet needs increases the credibility of the HR function.
• When change takes place, it is important to survey the stakeholders before, during, and after
a change program.

Methods of Measuring Client Satisfaction

Information can be gathered from clients in several ways including informal feedback; surveys;
and the critical incident method.

Problems with Measuring Client Satisfaction

• High expectations of clients—if clients in one business unit have extremely high
expectations, their dissatisfaction scores will be high.
• Conflicting expectations—the employee group might desire extensive counselling, while
senior managers might focus on maximizing productivity.
• Professional affiliations—line managers might value faster job filling, while HR might value
the creation of a valid selection test.

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Chapter 14—HR Assessment and Analytics Strategic Human Resources Planning, 7e

Culture Management

Attitudes: perceptions or opinions about organizational characteristics.

• Effective organizations seek to influence employee attitudes through an appropriate culture,
to support optimum performance.
• About 80% of Canadian organizations measure employee engagement, and the majority of
organizations report scores between 60% and 80%.

Cost Control
The 3 ways to reduce labour expenses by reducing the size of labour are technology,
outsourcing, and downsizing.

Increasing Efficiency

Efficiency: results achieved compared to resource inputs.

Measures of efficiency include:

1. Time (e.g., time to process a claim).

2. Volume (e.g., number of people interviewed).
3. Cost (e.g., per training hour).

Results to be compared to interpret accurately.

Cost of Employee Behaviour

Employers should carefully track and compare the rates of absenteeism, turnover, and
occupational injuries and illnesses. The cost can be significant. Learning time for new
employees to become productive is estimated at between 6 and 18 months of the employee’s
annual compensation.

Contribution
• The effective management of people makes a difference in how well an organization
functions.
• Studies have shown that HRM practices have a positive effect on employee performance and
organizational performance.

How HR Contributes to Organizational Performance

Financial Measures

Survival
• Survival is the first measure of effectiveness.
• If an organization does not go bankrupt, it is a success, called a life-or-death index.
• Most employees desire a relative measure of their own performance.

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Chapter 14—HR Assessment and Analytics Strategic Human Resources Planning, 7e

Profits or Return on Investments

ROI—return on investment
ROE—return on equity
Any HRM practice that contributes to ROE related to expenses relative to sales or other financial
ratios will often be supported by senior management.
• Ratios measure the relative success of an organization in meeting its goals.
• HRM contributes to these measures of impact in training or performance appraisals. They
help HR to have rational ways of making decisions, as shown in HR Planning Today 14.1.

Measures of Managerial Perceptions of Effectiveness

• Sometimes the best method is to ask managers to assess their organization’s performance
relative to the performance of competitors.
• These perceptions have been found to correlate positively with objective measures of a
firm’s performance.

Approaches to Measuring HRM Practices

1. Activity-based measures
2. Costing measures
3. Client satisfaction

Cost-Benefit Analysis

Cost-benefit analysis: the relationship between the costs of a program and its benefits

Direct costs: the hard costs that can be measured by expenditures

Indirect costs: the soft costs that have values that can be estimated but not easily measured by
financial expenditures.

Utility analysis: a method of determining the gain or loss that results from different approaches.

Benchmarking

Audit: a measurement method that assesses progress against a plan.

Benchmarking: a process that can enhance organizational performance by establishing standards

against which processes, products, and performance can be improved.

Benchmarking employs this tool. The organization can check against a plan, e.g., have they
maintained the goal of employee satisfaction at 4/5 on employee satisfaction scales?

Can use four different sources of comparison:

1. Stimulate
2. Motivate employees
3. Provide compensation data

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Chapter 14—HR Assessment and Analytics Strategic Human Resources Planning, 7e

4. Raise questions and stimulate

Four sources of benchmarking partners:

1. Internal (compare previous year’s recruitment to this year’s).
2. Competitive—compare exact functions of a competitor.
3. Sector associations establish HR benchmarking subcommittees.
4. Best-in-breed organizations—many organizations are willing to share this information.

The HR Scorecard

Balanced scorecard: a balanced set of measures to show contribution to organizational

performance.

A balanced scorecard is based on the idea that financial measures alone do not capture true
performance, and that these measures reflect past performance, not that of the future. The
balanced scorecard provides answers to:

1. How do customers see us? (the customer perspective)

2. What must we excel at? (the internal business perspective)
3. Can we continue to improve and create value? (innovation and learning perspective)
4. How do we look to shareholders? (the financial perspective)

Measuring the Worth of Employees

• Great slogans like “Our product is steel; our strength is people” indicate the importance of
employees’ human capital in organizational success.
• Human capital typically includes employees’ knowledge, skills, capabilities, and attitudes.
• Some attempts have been made to measure human capital using historical costs, replacement
costs, and present value of future earnings models.
• HR professionals who attempt to measure the worth of employees do so because it
demonstrates that HR is strategic and adds to competitive advantage and so must be
expressed in credible financial terms.

Universality of Best Practices

No single best practice works in every situation. Organizational structure and goals vary
considerably. What may work in one organization may not be effective in another. HRM impact
must be measured against unit goals, not against some generality such as profit or growth.

Separation of Cause and Effect

It is difficult to determine what causes organizational success. There is a lack of confidence in
the explanation of causal links between HRM practices and organizational performance. The
culture of the organization may have a greater impact on employees than specific HRM
practices.

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Chapter 14—HR Assessment and Analytics Strategic Human Resources Planning, 7e

Successful Measurement
All measures should have the following characteristics:
1. Alignment
2. Actionable
3. Trackability
4. Comparability
5. Drill deep
6. Report and communicate a limited number of measures

Measures can also be put in a hierarchy:

Utility Analysis
Level 1: Basic data—headcounts, number of positions.
Level 2: Operational data—training days, number of grievances.
Level 3: Employee data—levels of engagement, absenteeism, turnover.
Level 4: Organizational data—the correlations between turnover and sales; between engagement
and unit performance.

Reporting to Boards of Directors and Shareholders

External stakeholders want to know the human capital number because they know that these are
often linked to the future performance of the organization.

The Future of HR Analytics

As seen in the chapter, HR professionals generate data to assess the effectiveness and efficiency of
corporate HR programs. The current trend is to use the data to maximize how HR initiatives drive
programs to meet organizational objectives.

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