Dramatic changes in global economy have unleashed profound implications on people management practices. On every from whether domestic or universal, the environment is getting tougher day by day as shrinking business revenue is forcing the organisations to go for rightsizing and cost cutting.
Human resource practitioners are under tremendous pressure to "do more with less", and consequently workforce is also facing a challenge to move the organisation forward and steer through the crises successfully. As per S&P 500 assessment, the net worth of tangible and intangible assets in fortune companies stands at 15 and 85 percent respectively.
Within the intangible assets, Human capital is a heavy weight, because 20-70% of annual operational expense of an organisation is spent on people induction, development, compensation and retention. Despite this tilt on intangible side, the organisations still are largely driven by financial measures of tangible assets as intangible assets don't have clearly measurement tools.
HR does analyse and report routine activities, but how to measure performance in its sub functions and relate it with Return On Investment (ROI) in these areas, is a question mark for most of the organisations today. The psychology of business leaders is that they are keen to know the return on every rupee spent on a particular activity.
With tight justification, they are also interested to find out that how investment on talent management in an organisation impacts the top and bottom line of the business. Since numbers are universal language of business, therefore business leader prefer to talk in terms of hard data and feel comfortable in taking decisions accordingly.
Lack of measurement in HR is a global phenomenon; however, the situation is more grim in our country. Commonly, the language used by HR is qualitative one, lacking precise measurement and substantial evidence. This "opinion mode" is considered to be subjective and not very reliable by business leaders.
Though organisations use some form of workforce performance measurement like revenue or sales per employee; but this "cost only" perspective is too simplistic and does not capture other dimensions of workforce performance like, time to complete a work, quantity delivered, quality of product and responsiveness of people.
HR practitioners, therefore, have a challenging task ahead to provide business leaders with actionable information, which can help in making decisions about people with same kind of rigor, logic and facts, which is used to make decisions about investments, marketing strategies and new products. As a concept of human resource accounting, the world is now moving towards HR measurement and benchmarking.
Using this tool, the organisations can quantify the value of each employee and his contribution to the overall business profitability. An analysis of use of HR measurement metrics in forward looking companies has revealed that these are very useful in calibrating the efficiency and productivity of workforce, and responding effectively to emerging organisational change challenges. In the economic recession, they can act a value added tool helping HR planning right people in right place at right time.
Through HR metrics, the business concerns can gauge human productivity and cost at three critical levels. First tier measurement consists of HR activity, which builds around planning, acquiring, supporting, developing and retaining people in the organisation. Next level consists of functional measurement, which can analyse processes in terms of service, quality and productivity.
Third level of measurement consists of organisational ROI, encompassing cost, time, quantity, quality and human reactions/response to business activity. The third level measurement is strategic in nature, and has the capability to provide insight into the company's big picture including complexities associated with linking people, strategy and performance in an organisation.
To benefit completely from this tool, the organisation should be able to discern the messages in measured metrics and integrate them with action plan to achieve business objectives. HR measurement metrics can change the business landscape in Pakistan and business leaders can be in a better position to decide, where to deploy their resources for maximum impact. Being a fact based talent decision framework, it can act a catalyst in improving organisational effectiveness and driving strategic change.
For HR, it is an opportunity to come at the fore front of business equation. HR measurement has certain limitations as well. In order to truly benefit from this tool, the measurement should be taken as a joint responsibility by HR and line management and a right metric should be used for right question. To cater for differentiation, separate metrics should be used for distinctive category of employees in organisation. An effective communication coupled with follow up evaluation and taking time to adjust is extremely important.
Organisation should also be conscious of drowning under the weight of its own measurement and suffering from "analysis paralysis". A glaring pitfall of HR measurement is that it may expose inefficient or ineffective areas of HR management; because number never tell a lie; however the perceived benefits of HR measurement are greater than possible drawbacks.