THE VALUE OF HR METRICS

The Value of HR Metrics

The Value of HR Metrics

Measuring of Value of HR

The concept of value is central to changing expectations for HR professionals. Value is defined by the receiver more than the giver; HR creates value when those who use the services of HR gain from them. Traditionally, this has meant that because of HR practices, employees are both competent (able to do the work) and committed (willing to work hard). In addition, line managers get value from HR when its activities help deliver strategy and reach business goals. These ways of providing value are easily seen for internal stakeholders, such as employees and line managers. We believe that HR will greatly increase its value in the future as HR professionals and their practices help external customers become more connected to the organization and encourage investors to invest in the firm. Our research has shown that HR professionals from high-performing firms have substantially greater knowledge of external factors, such as customers and investors, than do their counterparts in low-performing firms(Barney Wright 1997 pp.112). Furthermore, HR professionals from high-performing firms are much more likely to account for external customer requirements in the design and delivery of HR practices than their low-performing counterparts. (In our work, high performance is defined as the financial performance of the firm over the past three years compared to major competitors.)  HR's emerging contribution is to design practices and activities that build customer share, with target customers making a larger portion of their purchases from the firm because of relationships formed with it, and investors increasing their valuation of a firm's assets because HR has helped create an organizational reputation that garners the confidence of the investment community(Kirn Rucci Huselid Becker 1998 329-336).

An article in Fortune magazine once called for the abolition of the human resource function, arguing that HR managers are unable to describe their value-added contribution except in tre n d y, unquantifiable and wannabe terms(Fortune, J. Stewart, Blow Up the Department, Jan. 15, 1996). The author suggested that efficiencies could be increased by outsourcing certain activities and returning responsibilities for people to line managers. His exact words were “Blow up the HR department.” Senior executives who read Fortune were left wondering, “Does HR make a difference? Does it add value?” Clearly, until HR managers can talk about contribution and value-added in the vocabulary of business — numbers, the HR department will be the target of drastic proposals such as the one in the Fortune article(Pfeffer 1996 33-44). In fact, the HR department should be treated like other operating units, i.e., subject to questions about its contribution to organizational performance. In the simplest terms, HRM must make a difference or be abolished. Decision makers in organizations view HR activities, such as training courses, as expenses. They view results as value. There fore, measuring the HR function is critical for improving both the credibility and the effectiveness of HR. If you cannot measure its contribution, then you cannot manage it or improve it. What gets measured gets managed, and improved. Numbers are the vocabulary of ...