The Road From HRM To Business Results Is Littered With Misguided Metrics – – Part II

Thanks for coming back in spite of the math — or because of it. Now that we know what we’re trying to do, to improve revenues and profits, we’ve got to explore, getting down and dirty, what drives financial results in a specific organization. Do newer products garner the greatest increases in sales and profits? Does more effective exploration/leases/development garner better raw material costs? Does our future growth depend on opening up new geographies, improving product quality, delivering 1st rate customer service? Until you really understand what drives business results, it’s not possible to figure out how HRM can help. That alone requires that HR leaders be up to their eyeballs in the business of their business.

But let’s assume that we really do know those drivers of business results. Now we need to figure out which HRM-related actions, processes, plan designs, etc. affect those drivers in a positive way, and by how much.

I could go on, but I think that the process of working backwards from the desired business outcomes to the needed HRM results is already clear. And it’s clearly different from the typical HR department’s so-called strategic plans, when littered with “we’ll implement self service” or “we’ll improve bench strength” or “we’ll implement a new performance management process and ensure that everyone is reviewed twice a year.”

With a real HRM strategy, one that explains what specific HRM actions, processes, plan designs, etc. are intended to have impacts on the business drivers of organizational outcomes, we can track our progress using revenues and profits per measure of workforce effort and introduce one of my favorite HRM-related metrics: the total HRM (including the HRM delivery system) cost of delivering agreed business outcomes, otherwise known as TCBO. Our goal is to drive up revenue and profit per measure of workforce effort while driving down TCBO. What could be simpler?

TCBO is by far the most useful, purely HRM-related metric, but it can also be quite difficult to measure and track. As a whole, it can be used to measure the total HRM-related costs of achieving the macro measures of revenue and profitability per appropriate workforce measure, but subsets also can be used measure smaller but very important intermediate HRM outcomes, e.g. the total HRM-related costs of delivering one highly qualified, good fit new hire. The new idea here is that, to the business owner, what matters are the business outcomes rather than the process activities or even the process outcomes on which HR leadership has traditionally focused.

When you work toward this view of HRM and the HRM delivery system, many of the investments needed to achieve truly world class HRM practices as well as a world class HRM delivery system, e.g. proactive, intelligent self service, can be justified on the basis of the expected improvement in needed business outcomes. But you can’t begin to develop this view of HRM and the HRMDS, nor to use these business outcome metrics in your investment business cases, unless HR leaders take a strategic view of HRM and HRMDS planning which aligns their organizations’ overall business outcomes with everything about HRM. Without this approach, HR may well address the costs of benefits administration without tackling the cost or value of those benefits, of reducing the time and cost to hire without reducing the elapsed time to productivity or increasing the quality of hire, etc.

The bottom line. If you don’t know where you’re going, it’s of little importance how, at what cost, or when you get there. Measurable, provable improvement in business outcomes is where we’re going, so pinning those down first provides enormous guidance to HRM in how best to unleash its own actions, practices, plans designs, etc. toward getting there.