Time for HR to provide CEOs more meaningful metrics
(Part 2 of 2)
This is the second of a two part article by Dr. John Sullivan, entitled “Time for HR to Provide CEOs More Meaningful Metrics.”
In our previous article, we looked at the weaknesses in the way metrics are currently used by many HR leaders and the Four Strategic Criteria HR Metrics must meet.
In this post, we’ll examine seven specific strategic metrics to report to your CEO.
The top seven strategic HR metrics to report to your CEO
In order to narrow your focus on a few important issues, I generally recommend that you report no more than seven strategic metrics to your CEO. And that means after you compile your initial list of metrics that meet each of the four strategic criteria, you might find your list of metrics is still too long. Rather than personally selecting the final CEO metrics, I recommend that you work closely with the CFO, the COO and the CEO’s office to select the final ones. After working with hundreds of companies over the last 30 years, I have developed a list of the seven strategic CEO metrics that I recommend. When you present any of these strategic metrics to an executive, rather than a single number, you should make sure that you also include last year’s number, today’s real-time number and the predicted number six to 12 months down the road.
- Increase in workforce productivity – the most important of all HR metrics is reporting workforce productivity. This revenue per employee measure of productivity reveals whether HR has increased the revenue of the organization relative to headcount and also allows you to benchmark against competition and other comparable businesses. To calculate workforce productivity, you simply divide your firm’s total yearly revenue by its average employee headcount. You can use MarketWatch.com to obtain revenue per employee numbers from other publicly traded firms in order to conduct your comparisons.
- Improvement in the performance of new hires – an effective recruiting function hires individuals during this year that perform better on the job than those hired last year. This quality of hire measures is reported as the average percentage of new-hire performance improvement (compared to last year as a baseline). It’s also a good idea to calculate the total dollar impact from the improved performance of these new hires.
- Performance turnover in key jobs – since double-digit turnover is not uncommon, turnover is an important metric. Rather than reporting the standard turnover percentage, instead utilize a “performance turnover” metric. This is a weighted metric that assigns a higher weight to the turnover of top performers in key jobs. Both the turnover percentage among top poor performers and the total dollar impact of that top performer turnover should be reported.
- Revenue lost due to position vacancy days caused by slow hiring – among all corporate strategic goals, increasing revenue is almost always the most important. Unfortunately, corporate revenue is automatically decreased whenever there is a vacancy in a revenue-generating or revenue-impacting job resulting from hiring delays. Every day that a revenue-generating job is open should be termed a “vacancy day.” I recommend that you report to your CEO the improvement in the number of vacancy days in revenue and other key jobs. You should also calculate the total dollars of revenue lost as a result of excessive vacancy days.
- A metric covering the current highest impact Talent problem – in addition to the fixed metrics already covered, it’s also important to report metrics covering currently hot talent problems. It’s especially important to report metrics in the areas of talent management that are currently on the executive committee’s agenda. So, I recommend adding a metric covering the top people management area that is currently “keeping your executives up at night” (beyond the already covered productivity, retention and hiring quality and speed). Often the metric will be something like “increasing innovation,” “developing leaders,” “diversity in customer impact positions” or “increasing internal movement.”
Midyear and year-end strategic metrics
In addition to the above five metrics that might be reported each month or quarter, the following metrics should only be calculated once or twice a year.
- Report the results of your “Which HR programs helped me to increase my productivity” survey – the simplest way to show which of the individual HR functional areas are actually helping managers and employees to increase their productivity is to survey them once or twice a year. In the survey, ask a sample of managers and employees (to save money and time), to rate each individual HR function’s contribution to their reaching their productivity goals. Utilize a 1 to 10 scale, with 10 indicating the function “exceeded expectations” of the person being surveyed in supporting/aiding them in reaching their individual and team productivity goals. For any rating of eight or lower, the surveyed person would also be asked to estimate the dollar amount of their reduced productivity as a result of not receiving enough support from HR. Normally functional areas within HR that would be covered in the survey include recruiting, retention, innovation training, compensation, leadership development, internal movement, performance management, onboarding, benefits, and diversity.
- Report the % of HR strategic goals that were met – all strategic functions meet their goals. So, halfway through and also at the end of every fiscal year, the HR function should report to executives the percentage of its strategic goals that were met or exceeded. HR should also list the percentage of the target that was reached for each of its top five goals.
Additional actions for improving HR’s strategic metrics
The primary goal for your metric efforts should be to get your CEO to read your strategic metrics and then act quickly, using a prescribed solution. If you are an HR leader, you should also realize that there are some additional actions that can lead to a dramatic improvement in your strategic metrics and the way that you report them to your CEO.
The eight most critical actions you can take to support your HR metric reporting
- Shift to a data-driven HR function – Executives love data. So, long before you begin developing metrics, it’s critical that the entire HR department shift to a data-driven decision-making model. Requiring every program in HR to shift to a data-driven decision model will simultaneously improve the accuracy and the speed of all people management decisions.
- Work with the CFO’s office to avoid major errors – Because CFOs are the undisputed “king of metrics,” work with them in order to ensure your metrics plan and your list of strategic metrics meet their standard. It’s also wise to involve the COO and to get their buy-in for your metrics plan.
- Build a compelling business case for a strategic metric effort – You will not be able to develop strategic metrics or collect the needed data for executive leadership without adequate funding. Begin the justification for more funding by putting together a complete business case that demonstrates each of the possible positive business impacts. You should also calculate the negative business impacts and the dollar costs as a result of having ineffective talent metrics that don’t drive action. And finally, estimate the potential ROI resulting from a comprehensive metric effort.
- Report your metrics inside standard financial reports – Unfortunately, the role of most HR leaders stops when they “report” metrics to executives. That can be a major problem because even well-developed strategic metrics add no value if they have never been seen or read. And unfortunately, many HR metric reports go unread. The best way to guarantee that your metrics will be actually seen and reviewed is to embed them in the standard monthly or quarterly business reports that are distributed to all managers. Not only will including a handful of top HR metrics and standard financial reports make it more likely that executives will notice them, but they will also see your metrics side-by-side alongside other business metrics. And if your HR metrics are reported in dollars, executives will immediately be able to see how impactful many HR areas are, when compared to other business functions that are also quantified in dollars.
- Provide comparison numbers for each metric – If you want your executives to see trends and HR’s performance relative to a standard, you should provide comparison numbers for each individual strategic metric. Those comparison numbers might include a comparison to last year’s number, a comparison to the best/worst performance inside your company and a comparison to the best/worst in your industry.
- Focus on direct strategic business impacts – Forget the phrase “align with strategic goals” because alignment is not measurable. Instead, accept the fact that what really matters is unambiguously impacting each component of the firm’s strategic goals and executive bonus formulas. HR must prioritize and focus its activities on metrics and their related actions that have a direct measurable business impact on any area that is covered by the strategic goals.
- Don’t forget to calculate the cost of a long delay or doing nothing – The very best metrics encourage executives and managers to take quick action when metrics point out a problem. It’s also important to realize that HR leaders can reduce the number and the length of these delays if you work with the CFO’s office to quantify in dollars the cost of each likely-to-be-delayed action. It’s also important to realize that the costs of a problem may increase exponentially if the identified problem is allowed to fester.
- Focus on metrics that predict and prevent – All traditional HR metrics are historical and they provide limited value because they tell you about last year. Executives are generally forward-looking and they want to know about upcoming problems so that they can mitigate or prevent them. Therefore, HR must shift its metrics focus away from yesterday and towards what’s likely to happen in the immediate future. As a result, each reported strategic metric should include a forward-looking predictive component.
I have found that many in HR develop metrics primarily to look good and to appear more businesslike. Unfortunately, this shallow, self-serving approach often means executives must suffer through an array of low-quality metrics that add little value. The practice of providing “See what we are doing?” metrics is unlikely to change unless HR takes action to bring more relevant, business-focused measures to the table or senior executives put pressure on HR leaders to make a shift to a data-driven decision model throughout the function.
Data-driven decision-making is critical in a fast-moving world because new problems emerge quickly and existing HR programs become obsolete in months rather than years. In my view, it’s time for HR leaders to realize that reporting only a handful of powerful strategic actionable metrics has many benefits. Those benefits include more influence, more budget, continuous improvement and most importantly, higher business impacts that result from more focused HR programs and actions. In fact, it’s time for HR to move beyond simply being a “business partner” and to move up a level or two to become a data-driven “business leader,” with much higher measurable business impacts.
Looking for the four strategic criteria HR metrics must meet? Check out the first part of Dr. Sullivan’s article.