Human Resources (HR) executives want a seat at the strategy table, but most do not consistently deliver the bottom-line data on human capital management necessary to support a strategic role. The lack of meaningful data is not for want of tools. Human Resources technology, specifically HRMS (human resource management systems), has dramatically increased the ability of HR departments to collect and manage employee data efficiently and effectively.

However, the failure of HR professionals to consistently measure results and run their operations with reference to agreed upon metrics holds them back as strategic counselors. Despite all the data collected, measurement and reporting practices are lagging. This is in contrast to quantifiable processes that drive key organizational functions like sales, finance and logistics. Lacking the right kind of data analysis, HR professionals appear to be out of alignment with senior management - who largely run business “by the numbers”.

As Edward Lawler, Director for the Center for Effective Organizations at the University of Southern California, recently wrote in The Wall Street Journal, “In a company built to leverage human capital, the HR staff would spend less time processing benefits requests and more time being the expert resource on the state of the organization’s work force and its ability to perform.”

Strategic metrics
A detailed study sponsored by Birkman International and Stanton Chase International, completed in the first quarter of 2008, demonstrates the dimensions of the problem HR professionals face. Responses from nearly 400 human resources managers and executives at organizations employing from fewer than 100 to more than 50,000 persons show that the most commonly recorded and reported HR measurements are largely tactical and transactional.

It’s significant that more than 85 percent of organizations surveyed do track HR data and use that data to measure their organization’s performance and profitability as it relates to HR. However, only two key HR performance metrics – turnover rate and health benefit costs per employee –were tracked by half or more of the responding organizations. More significantly, measures that truly indicate the effectiveness of organizational human resources management – including training ROI, human capital ROI, employment vacancy costs, yield ratios and human capital value add – were tracked in less than 20% of responding organizations.

Discovering efficiencies
These latter metrics are fundamental to Business Process Management (BPM) – a set of processes that help businesses discover efficient use of their business units, financial, material and human resources. Simply put, BPM is the analytical framework that helps organizations achieve their strategic goals. In the world of talent management, this would place organizational focus on the truly critical roles—identifying high performers and fostering methods to produce them. Training ROI is an excellent example of the type of measurement analytic that applies in this context. By identifying current high performers, HR could begin to design learning programs that will help improve the performance of the entire business.

Talent metrics: measuring the “intangibles”
Why doesn’t HR track data that is crucial to BPM? A bunker mentality is one big reason. Organizations typically rely on operations and finance departments for key measures of organizational performance. However, many professionals in these areas fail to understand or use the resources available to measure the impact of talent or human capital – assets that are too “intangible” – on organizational performance.

HR guru John Sullivan opines there are two more bunker mentality errors common in designing HR measuring methods: designing an implementing them in a vacuum, and developing more of them than can be realistically used and maintained. Sullivan recommends a collaborative approach, in which HR professionals decide the strategic HR metrics they most want and believe in, then ask the CFO to select the specific ones that are most likely to measure business impact and be easily understood and considered strategic by top management.

These strategic figures should not be simple information. Many companies track retention, for example, but to solve a turnover problem, HR needs to discover why people leave. HR adds value when professionals decide not only what to measure, but also how to interpret the data. This produces the kind of information the organization can use to achieve its overall goals.

HR management consulting firm ProOrbis recommends that organizations look at four broad areas: effectiveness, efficiency, cycle time and integration. Some common human capital metrics include: revenue per employee, profit per employee, number of employees per HR staff, cost of compensation compared to total operating expenses and cost of the HR department compared to total operating expenses. Whatever is measured must be linked back to the organization’s overall strategy and objectives. Sound metrics are the key to getting finance and operations to recognize the value in human capital

There is a movement underway from HR metrics to human capital metrics. Researchers contend that human capital measures are those that determine and predict future business results, while HR measures tend to look inward toward what the HR department is doing, Business leaders uniformly want to maximize the impact of human capital and to align HR processes with the overall business strategy. According to The Conference Board’s study, “CEO Challenge 2006,” improving productivity and stimulating innovation, those initiatives most clearly within the domain of HR, are of primary importance to senior executives.

HR at the table
The predicted trend in HR is to build data systems around what interests top management—how human capital impacts the execution of strategy. This requires HR professionals to:

1. Understand their organization’s business realities
2. Focus on metrics that are meaningful to managers, customers and shareholders
3. Align HR procedures to business goals
4. Devote adequate resources to ensure that data and processes meet those goals.

In the future, HR professionals must quantitatively and qualitatively show the value of human capital assets within the organization and demonstrate ROI for human capital asset initiatives. HR must realize that the goal is not human capital metrics, but rather information that will help executives make better decisions. Print reports and spreadsheets as capturing and reporting tools simply compile information and don’t apply it. Unless HR professionals bring to the strategy table the analysis that those at the table already want, they will never have their own seat.

About the Author:
Taking over for her father, Dr. Roger Birkman, in 2001, Sharon Birkman Fink is President and CEO of Birkman International, Inc. providing a unique assessment tool that accurately measures internal needs, behaviors, occupational preferences and organizational strengths. She can be reached at 713-623-2760 or sfink@birkman.com.

About Birkman:
The Birkman Method ® has been in use for over 50 years and has been used by over 2 million people and 5,000 organizations worldwide, including corporations, not-for-profit organizations, governmental agencies, and individuals in their hiring, retention, motivational and organizational development activities. The assessment accurately measures social behaviors, underlying expectations of interpersonal and task actions, potential stress reactions to unmet expectations, occupational preferences and organizational strengths. For more information: www.birkman.com or 1-800-215-2760.