The Quest for Better Human Capital Metrics

By Alice Graves, Institute for Corporate Productivity

We had a theory and wanted to test it. So we typed "HR holy grail" (no quotes) into a Google search box and, sure enough, what popped up on the first page were various articles about HR metrics and analytics. There was one result on determining the return on investment (ROI) in HR development, one on predictive analytics and another on measuring the value of human capital.

It's easy to see why attaching hard numbers to the notoriously soft and fuzzy issues of people management has become one of the secular "holy grails"—or elusive goals—of organizations. Metrics and analytics help organizations know where their strengths and weaknesses lie and allow them to plan for the future more effectively. They are particularly useful in times like these, when organizations need to carefully leverage scarce resources so they can emerge stronger than ever when the economy recovers.

There have been a string of excellent thinkers and "gurus" in the field. Back in the 1970s, the founder of the Human Resource Institute (the Institute for Corporate Productivity's predecessor), William Pyle, helped to develop the idea of human resource accounting. And there have been other pioneers, such as Jac Fitz-enz, who founded the Saratoga Institute, and Donald Kirkpatrick, who developed the widely used four levels of training evaluation. In recent years, thinkers such as John Boudreau have worked to help HR distinguish among the concepts of efficiency, effectiveness, and impact in the area of workforce analytics. And the Institute's own senior vice president of research, Jay Jamrog, has become especially influential in the areas of organizational alignment, workforce planning and performance metrics.

Despite the efforts of these and many other contributors to the field, measuring and analyzing human capital well continues to be an elusive goal that often seems just beyond the reach of most organizations. But are they making serious progress in their quest?

A new 2009 study—the first in a series of metrics studies—suggests that it depends on what we mean by progress. There's a considerable emphasis on efficiency measures, which help HR decide how well it's doing certain activities. For example, the study shows that most companies measure things such as rates of turnover, voluntary termination and involuntary termination. But relatively few organizations are tracking the termination rates of high-potential employees or those in "pivotal" jobs. These organizations are more likely to measure how many employees "separate" than to analyze who is leaving the organization, especially when it comes to their skill levels.

Relatively few companies look at the quality of separations, that is, the effect that each termination has on the organization. Some terminations—even voluntary ones—can be good for a company. To determine whether it's a net gain or loss, however, companies need to examine the quality of those separations. They need to judge the true effectiveness of programs designed to keep needed talent and weed out those programs that don't fit the organization and its goals.

To this end, some firms have made more progress than others. The study looked at the differences in metrics/analytics usage among high- and low-performing organizations, as determined by self-reported market performance. Analysis of these results show that high performers are more likely to focus on talent-related metrics than are low performers. For example, high performers are far more likely to measure movement within the organization, quality of hire, quality of promotion and the cost of training/development resources invested in top performing employees versus poor performing employees.

Low-performing organizations generally stick to the basic efficiency measures. When comparing large organizations (10,000+ employees), for example, lower performers are about as likely as high performers to measure things such as hiring cycle time. But large companies that are classified as higher performers are considerably more likely to gauge talent-oriented recruiting efforts such as employee referral rates.

Ultimately, there's a need to focus metrics on organizational goals that go well beyond HR efficiencies. According to Jay Jamrog, HR departments in high-performing organizations often take an "outside-in" or future-leaning approach to metrics and analytics. To do this, they start by identifying the business model, its components and what drives value in the organization. Then they develop an HR strategy to execute the business model. Only then do they implement metrics that gauge the degree to which they're successfully serving as a strategic partner.

Sometimes metrics are used to launch serious improvement efforts. Consider the experience of the Institute's member organization WellPoint, Inc., a health benefits company that serves over 35 million members. In 2005, WellPoint discovered it had a problem with first-year voluntary turnovers in its service operations department—over one-third of new hires left within their first year of employment. Since it often takes a year to bring a new employee to full productivity, losing a high percentage of new hires can be extremely costly for an organization.

For a health-care company in particular, high operating costs lead to greater costs for customers, lower reimbursements to providers, and less competitiveness in the industry. WellPoint considered the costs of recruiting, onboarding, and training, and decided to embark on a comprehensive analysis of the problem, its causes and solutions. WellPoint studied various HR processes and found it could make each more efficient and effective. As a result, the company saw a 13.5% improvement in first-year voluntary turnovers, a cost savings of almost $6 million ("WellPoint, Inc.," 2009).

WellPoint has also been focusing on predictive analytics and workforce planning. This focus has required HR to work closely with the finance function. David Ibarra, Director of HR Metrics at WellPoint, has noted, "We had to get our partners there grounded in the methodology first… We got our CFO to report our results to help with credibility. We were able to move forward with the body of work without question" ("A New Path," 2009).

Today's demanding economic times present new opportunities for human capital metrics to prove their worth. Such metrics can help organizations spot problems, move key workers to influential positions, and teach new skills and technologies to better position the company in the future. The quest for the perfect set of HR metrics and analytics continues, but the Institute for Corporate Productivity's research suggests that some organizations are considerably further along than others.

Documents used in the preparation of this article include the following:

  • A new path to the holy grail: Workforce planning through predictive analytics, with Ed Newman and panel (2009, March 10).
  • WellPoint, Inc: Early tenure turnover analysis saves $6 million. Retrieved February 6, 2009.

Author Bio:
Alice Graves is an associate with the Institute for Corporate Productivity (www.i4cp.com)

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