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Adventures of Bloom & Wallace
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In my last post, I began discussing the importance and use of metrics in the running of the HRM business and it’s HRM delivery system (HRMDS), to include those metrics needed in the service level agreements for shared services and when any part of the HRM business and/or HRM delivery system is outsourced. And please note that SaaS is outsourcing, albeit IT outsourcing. I also emphasized the importance of staying focused on business outcomes, both HRM’s and those of the organization as a whole, so that running the HRM business and the HRMDS don’t become ends in themselves.
As promised, this post introduces the precisely organized and stable HRM domain model that’s needed to provide a consistent terminology and meaningful partitioning for discussing the HRM processes for which we want to define metrics and outcomes. We’ll also need a taxonomy for categorizing and defining the most appropriate set of HRM and HRMDS metrics for your organization, and I’ll suggest such a taxonomy in my next post.
This diagram presents the seven highest level processes in the HRM domain along with their next level, modeled decomposition. Then, via bulleted examples in colloquial terminology (as opposed to the formal modeling terminology of the HRM processes) of some of the work products produced at that second level, these diagrams provide a rough definition of the scope of those processes. This formally modeled view of the HRM domain has been very stable over the last 20+ years even as many of the lower level processes and accompanying data design (really the entire HRM object model, which is the focus of our HRM Business Model “Starter Kit”) and enabling architecture have evolved in important ways.
Nothing in this HRM domain model suggests the specifics of people, work flows and technology that, taken together, give life to the domain via an HRM delivery system, nor does this model presuppose any specific organization’s HRM policies, practices or plans. Instead, it provides the structure within which we design and then execute organization-specific HRM policies, practices and plans. Furthermore, and here’s where trying to create a one page diagram drove me nuts, there is a clearly implied but not shown here companion object model which is critical to developing a deeper understanding of these processes and to creating a highly technology-enabled HRM delivery system. For example, the fact that contingent workers are addressed within Staff The Organizational Structure must be supported in the accompanying object model by a person rather than employee-centered design. We’ll leave discussion of the desired HRM object model for another series of posts, but you may want to reread the January/February, 2004 and May, 2007 columns in HRO Today for some preliminary insights into this topic.
If you already have a well-defined and stable HRM domain model in use throughout your organization, by all means use that instead of the model introduced here. But one advantage of this particular model, which was developed using rigorous data, process and object modeling techniques, is that it’s quite similar (we won’t digress here to the chicken and egg discussion) to the underlying object models of many HRM software vendor’s (or BPO provider’s proprietary) next generation, service-oriented architecture (SOA) software. For developing an organized view of HRM and HRMDS metrics, it’s sufficient to consider the HRM domain model at its highest two levels, either yours or mine.
So, to get started with our HRM/HRMDS metrics, set up a giant spreadsheet with the HRM domain model’s two highest level processes arrayed as columns, where there’s a summary column for each highest level process and then more detailed columns for that process’ decomposition. The next post in this series, part III of IV, will suggest a metrics taxonomy (i.e. categorization scheme) that will array itself as the rows. Then we’ll have a structure within to consider for which of these cells metrics should be proposed, which metrics would work best, who should be responsible for setting the target values, what actions should be taken as a result of those metrics hitting or not hitting their target values, who should be responsible for producing the metrics and accountable for achieving the target values (two very different roles), which metrics should become a part of any shared services/outsourcing SLAs, etc.
The bottom line. What we’re building, step by step, is a consulting tool, the same one I use with my end-user clients, to help ensure that we have the right metrics in place for running the HRMDS, the HRM business and, of greatest importance, for measuring progress toward the agreed business outcomes. Even when you outsource an HRM process, although some of the needed HRMDS metrics are of more interest to the outsourcing provider than to their customer, an understanding of the complete landscape of needed metrics helps the buyer decide what to include in the relevant service level agreements (SLAs), what will be the buyer’s responsibility, and what analytics will be needed, regardless of who delivers them, to run your business and achieve its agreed-upon outcomes. And all of this applies to the SLAs for shared services.
Since we’re already on the subject of metrics and more metrics, let’s take a deeper dive before making further investments in HRM and the HRM delivery system (HRMDS). We know we can’t improve what we don’t measure, but the dirty little secret of HRM and HRMDS metrics is that we will only get improvement in the specific metrics on which we focus. And that focus is too often on HRMDS activities and process outcomes rather than on the HRM and organizational business outcomes that we’re trying to achieve. But we’re going to change that.
It’s relatively easy, for HRMDS activity and process outcome metrics, to establish them, assign target values, and take periodic measures. How many calls by type at the call center, how quickly were they answered, how accurate were the answers, and how many were resolved with that first call? How many qualified expressions of employment interest were received, and at what cost and elapsed time, via each recruiting source used? How many “pay checks” were “cut” per payroll cycle, with what degree of accuracy and timeliness and with what elapsed time between the close of the payroll cycle and the time when all distributions had been made? How many performance reviews or salary increases or training enrollments were completed “correctly” and on time, which managers are running late, and is the cost of that lateness in followup/tracking activities? What percentage of address changes were handled in the last quarter via self service versus call center or electronic forms, with what frequency of related changes (e.g. of state tax changes, of HMO enrollment changes, or of mass transit subsidy changes) handled concurrently, and with what error correction versus avoidance via embedded address edits?
While all of these examples are important to the efficient and effective running of the HRMDS, and therefore of profound interest to those responsible for it, we could do all of this to a very high standard of low cost, rapid turnaround, and high quality without helping our organizations increase revenues or profits materially, bring new and better products/services to market faster, or enter and dominate new markets more predictably. Although the HRMDS’s behaviors and capabilities are critical to achieving these more strategic HRM and organizational business outcomes, we won’t get those outcomes unless we can establish the right metrics for them and do the heavy lifting necessary to achieve them.
With apologies to Mark Twain, I’m beginning here a series of posts that will take us from the simplest of HRM/HRMDS activity metrics to those which reflect the results of HRM/HRMDS processes and then on to those metrics which really matter in achieving the desired business outcomes. Not all of these are appropriate for use in every organization, but they are all related to the running of the HRM business. Whether you’ve put your HRMDS together and operate it yourself, perhaps with some selective outsourcing and/or systems integrators, or you’re using very comprehensive HRM BPO, you must understand when and how to use the full range of HRM and HRMDS metrics to ensure that you don’t achieve the lowest possible cost of payroll operations while increasing your organization’s outlays on health care or its turnover rate among the very employees you most want to keep.
To organize what would otherwise be an overwhelming number of possible metrics, this series of posts will first introduce a model of the HRM domain that organizes all the bits and pieces of HRM processes into a small, very stable set of highest level processes. This model is extracted from my HRM Business Model “Starter Kit,” which you can read about here. Then we’ll build up our recommendations around metrics from the simplest and least valuable to the most complex and most valuable, with respect to achieving business outcomes. I’ll provide examples of those metrics that are useful in running the HRMDS, like those which belong in our shared services or BPO agreements, and those which should be the analytics delivered via dashboards for employees and managers, “flight cockpits” for HRM and HRMDS executives, and “mission control” setups for HRM process specialists and HRMDS operations professionals.
It’s fairly easy to spot those metrics which are useful in operating the HRMDS and even those needed to measure the outcomes of specific HRM processes, and many of both kinds are independent of both industry and organization. However, there’s a great deal of analytical heavy lifting which must be done by the HR leadership in a specific organization to determine by which metrics they’ll know if they are achieving their business outcomes. Since this is obviously impossible to do if no one has linked organizational business outcomes to HRM business outcomes and on to HRMDS behaviors and results, you may want to check here and here to get further background on the importance of making these linkages. Look for a later post to explore strategic HRM planning, which produces these linkages, in much more detail.
The Bottom Line. We’re awash in possible HRM and HRMDS metrics, and most of them won’t help us move the dial on our organization’s business outcomes, to include revenues and profits. But we’ve also got an HRMDS factory to run, and that too requires appropriate metrics. Looks like we’re going to need a taxonomy, a classification scheme, to organize all the important metrics and know which ones to use, when and for what. Please stay tuned.
Jason Averbook did a great post today on the sleezy (my term, not his) practice of so-called consultants who accept payments from vendors for favoring them in some way, e.g. putting them on the short list when they’re assisting end-users with vendor evaluations and selections. His post got me thinking, and the beauty of my now being a blogger is that to think is to write.
I’ve been offered these arrangements by some less than reputable vendors — please note that the best HRM software vendors wouldn’t think of doing this — and even by some naive vendors whose experience up to that point was that this is the way our industry works. And we’re not talking here about clearly advertised VAR (value-added reseller) arrangements in which one firm agrees to resell the products of another, adding (one hopes) value to those products via product extensions, implementation services, etc. VARs are understood to be biased in favor of the products/vendors they resell. So-called HR systems consultants are understood to be working solely for the end-user when the end-user is their client, hence Jason’s and my outrage at these referral/success fee practices.
And there are more subtle versions of “pay to play,” including thinly-veiled puff pieces that showcase a specific vendor or appear to prove a specific vendor’s point of view written by so-called analysts/analyst firms who’ve been paid by the vendor(s) in question to do this work, fees charged to vendors by producers of various vanity-style speaking engagagements/podcasts, and reduced consulting fees charged to end-users by so-called consultants during the vendor evaluation and selection because they know that they’ll be suggested by the “friendly” selected vendor for the implementation work to come.
The bottom line. There’s a terrific Mexican expression for these arrangements, la mordida, which is translated literally as “the bite.” And la mordida by any other name is still sleezy business. If you’ve been a victim of these arrangements, perhaps it’s time we named names.
Full disclosure: I work with end-users, with a wide range of HRM software vendors and outsourcing providers, and with investment firms that are interested in our space. My standard consulting agreement says that end-users with whom I work are told about any past, ongoing, even prospective work with vendors/providers that may be relevant to my work with them. I do all client work, regardless of the nature of the client, on the basis of clearly visible time and materials arrangements. I have never entered into any arrangement remotely resembling la mordida, and my vendor/provider clients are quick to say that I’m as hard on them as on non-client vendors/providers, in both my consulting and analyst roles, perhaps harder because of having greater knowledge of my client vendors/providers.
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.
If the real purpose, the only purpose, of HRM is to achieve organizational outcomes, then we’d better be able to measure the effects of specific investments in HRM on those organizational outcomes. Otherwise, why would anyone trust us with a budget?
The primary outcome measures for private sector organizations are revenues and profits, so we’d better be able to explain how what we’re doing in HRM, to include investments in HR technology but also investments in everything from total compensation to workforce development, increases ideally both of these in measurable and provable ways. Those are the metrics that matter and the only metrics that will capture and hold executive attention.
About now my colleagues are saying, and with good reason, that Naomi is off again on her quest for the holy grail of HRM, for those provable, measurable impacts of HRM on the real business outcomes of organizations. But if we really can’t do this, if we really can’t show a line of sight from improving the practice of HRM to improving those required business outcomes, we deserve to be relegated to the record-keeping, compliance and payroll responsibilities of our past.
There’s a ton of respected research as well as my own experience to convince me that it’s possible to figure out this line of sight for a given organization. Imagine the possibilities if we could embed some of the relevant analytical methodologies, tools and intelligence in HRM software? Do you suppose that’s what at least some of the HRM software vendors mean by analytics? Trust but verify might apply here.
I still don’t know how to develop this line of sight in the abstract, but I do know how to make the linkage work once I know an organization’s very specific business outcomes and what drives those business outcomes, when I know which flavor of revenue and profit are linked in the most direct way to what the workforce does. This varies considerably by industry and even by company within industry, so I usually ask someone in the know, in addition to observing, what measure I should use of revenue and profitability as the numerator in the two metrics I’m about to describe. If the mere mention of metrics or analytics unleashes your personal demons or causes your eyes to glaze over, the intersection of HRM and IT is not your preferred neighborhood.
With those revenue and profit numbers for the numerators of two separate metrics, we must search very carefully for the appropriate denominators, which will be the same for both metrics. We’re looking for an accurate and fairly reliable measure of the workforce effort deployed to achieve those revenues and profits. Is it primarily a full-time, employed workforce? Then perhaps a count of the employees who are actually working at the end of the relevant measurement period would be a good denominator. Is it primarily a part-time, employed workforce? Then try FTEs of employees who are actually working at the end of the relevant measurement period. Are there lots of contract/contingent non-employee workers? Then broaden those active employee counts or FTEs to include those non-employee workers. This isn’t about headcount but about the amount of workforce members used to achieve the revenue and profit numbers.
We can now measure in actually dollars (or whatever the preferred currency) the revenue and profit contribution per employee/employee FTE/workforce member/workforce FTE. These are the two ratios that we’re trying to improve by means of HRM. There may well be other useful metrics, much more finely tuned to particular groups within the organization, but business outcomes are always about “show me the money.”
The bottom line? Putting aside the baseline budget we must spend on HRM just to do the essential record-keeping, compliance and payroll (notice that I consider actually compensation and benefits outlays, as well as benefits administration, completely open for discussion), every other dollar invested, to include every total compensation dollar, should be focused on and justified by how it moves these ratios in a positive direction — and by how much.
If I’m going to use this blog for its intended purpose, then I’d better get right to work on a core, perhaps the core, issue that lurks, quietly but dangerously, waiting to sabotage our best efforts to achieve improved organizational outcomes through improved workforce performance. The villain of this piece is the sloppy, inconsistent, ill-defined and rampant misuse of terminology.
The English major/natural science minor within me screams every time I hear/read someone who fails to use the subjunctive properly. But my psyche screams even louder when colleagues who should know better use talent management or SaaS to describe whatever ill-conceived idea or product they’ve got on offer this week.
But where to start? The colloquial vocabulary for many to most of the important concepts at the intersection of human resource management (HRM) and information technology (IT) is so imprecise that I could make myself and you totally crazy trying to unravel that muddle. No entirely sane person is going to read the 3,000+ pages it has taken me to do so in my magnum opus, although some of you — and you know who you are — have already done/are doing this.
Perhaps the best place to start, as always, is with the results we’re trying to achieve, working backwards from there to figure what must get done, how, when and by whom, in order to achieve those results. In my professional life, the results we’re trying to achieve are specific organizational outcomes through improved human resource management (HRM). But what is HRM?
HRM is a business domain, a collection of processes and business rules whose purpose is to help ensure long-term business and organizational success. HRM is about planning for, organizing, acquiring, deploying, assessing, rewarding, leading, coaching, supporting, informing, equipping, retaining, and developing a high performance, cost-effective workforce. It is also about nurturing the growth, usage and value of the organization’s intellectual capital and personal networks.
What a mouth full, and there’s more. HRM isn’t just the work of a central/local/3rd party HR department. While an HR department and HR professionals may still control the strategy and design of HRM, HRM execution is increasingly in the hands of managers and leaders at every level and the increasingly technology-enabled, self-sufficient workforce.
The bottom line? The purpose — the expected organizational results — of HRM are to maximize the performance of the organization’s workforce and the leverage from its intellectual capital and personal networks toward achieving the organization’s stated business outcomes. If we could get all of the organization’s work done and results achieved without any workforce, we wouldn’t need HRM. But we can’t, so we do.
Welcome to InFullBloom. I’ve been agonizing over this initial post for weeks, and I’m still no closer to knowing what to write than when I started. I so wanted to grab everyone’s interest and immediate respect by saying something really profound about improving the practice of HRM, the use of HR technology, achieving organizational outcomes, life, the universe and everything. Perhaps I used up my best opening lines in About In Full Bloom and About Naomi Bloom. In any case, it’s not happening here, so I think I’ll just move on — to my 2nd post.
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