Analytic Measures Used to Predict and Evaluate the Quality and Impact of HR Practices

Introduction

Human resource management (HRM) is generally the management of work and people in order to meet desired goals and objectives in any organization. HRM is fundamental in starting and growing an organization thus has an inevitable consequence. There are various variations such as styles, managerial resources and ideologies used to engage the HRM. The relative performance of HRM models can be question in relation to the contribution they make to enhance organization performance that relates to investments such as advertising campaigns, new production technologies and acquisition of property. This forms an important area of analysis.

In HR and HR service delivery, metrics have become an important component that helps in measuring of HR program performance thus provides actionable insights in efficiency and effectiveness of the system in companies. According to Kaufman (2014), analytics in human resource management can be traced in the early 1900s. The level of analysis used in estimation of the impact of HRM practices at firm-level is strategic rather than functional. This approach supports both development and validation of a tool that reflects work practices performance. Measure of financial performance and intermediate employment outcomes are dependent variables that results are based on national sample of firms. Individual employee performance has been a topic of prevalent argument among the practitioners on whether its implications affect firm-level outcomes.

The importance of evaluating HRM

In management of companies, managers should manage basic activities to ensure the supporting functions are appropriate rather than organizing only. These functions are evaluated in accordance to the conduct of Human Resources Management (HRM) of the business. The effectiveness of a function influences the overall success or failure of the company. Increasing demands in today’s business environment has led to intensive pressure in HRM implementation. Organizational changes in team work and quality management system, productivity of workforce, increase in HR’s role and improved flexibility are influenced by HRM. This has led to increased necessity to evaluate the HRM and definition of added value of the practice.

The contribution of HRM has a detailed characterization in company’s activity. These contributions include: Evaluation delivers good economic comprehension; HR programs should be objected to provide appropriate return on investments thus good comprehension on program’s value that provides convincing evidence obtained through evaluation process and formal measurement; Evaluation provides the proof of result of the HR staff thus their efforts can be recognized; as a result of evaluation, results obtained are used to encourage HR staff  to focus on important activities that bring a difference in contribution of organizational effectiveness. Data collected from the evaluation process is used to isolate causes of HR problems as causes can be easily identified thus measure progress towards solving these problems. Personal satisfaction and position is increased as a result of evaluation thus HR staff can judge their success. Evaluation can lead to additional resources such as new programs, services and policies based on the HR function progress.

Many executives have HRM dashboards on their computers that provide company’s financial and business performance metrics quick view. In time of crisis where there is necessity of conducting activities such as bonus payments tied to company, cutting back on recruiting, laying off employees and measuring individual performance, evaluation of the HRM is done. Dashboards are used by managers to highlight qualitative and quantitative HR metrics. In firms, employee opinions can be used to diagnose specific problems, needs and preferences of employees can be identified. HRM is in recent influenced by economic crisis thus functions such as monitoring HR budget, managing structural changes in an organization and development of a reward system are highly planned.

HRM Practices

According to Arulrajah (2014), to achieve organization goals in effectiveness and efficiency of human resources is determined by human resource management (HRM). HRM practices are generally the HR programs, techniques and processes that can be implemented in the organization. Innovative business units seek to continuously manage the HR to create and market their new products and services in an effective manner. The rate of innovation and human resource are interdependent and compliment each other accordingly.  Deliberate designing and implementation of radical changes are the main concerns of organization innovation. Organizations that involve themselves in innovation need creative and innovative people who have attributes such as flexible, tolerance of uncertainty, risk taking and ambiguous. This describes the relationship between HRM and innovation (Chen and Huang, 2017).  Employee’s knowledge, skills and behaviors are the sources of innovation performance in a business unit. Innovation capacities are determined by employee’s motivation and competencies. HRM practices have power to control innovation occurrence, innovation inputs and sustainability of organization’s performance. HRM practices such as participation, career plans, training, autonomy and organized recruitment process are affiliated to creativity and innovation (Sanz-Valle & Jiménez-Jiménez, 2018). Diversity management, a result of effective HRM practices, creates and maintains the competitive advantage for organizations since diversity increases creativity and innovation (D’Netto et al, 2014). Information technology (IT) adoption and virtual organization (VO) forms the basis of e-HRM. These adoptions positively influence organization innovation and the relationship of employee’s creativity in relation to innovation. In materializing the performance of innovation’s role, additional mechanisms trigger innovation such as motivation, innovation oriented behaviors, culture and climate for innovation. An organization can sustain its HRM practices for a long period of time if the aspect of retaining creative workforce and experts is achieved. HRM practice involves input roles which supply the human capital for innovation. Analyzing and estimating HR input role in hiring creative people, innovation and recruiting highly and qualified personnel for job vacancies are the capabilities an organization should possess. Potential benefits of workforce diversity include success in handling customers, creativity and innovation and better decision making. These are accrued to selection practices of HRM. Similarly, ‘global staffing’ can create a workforce diversity which is key to corporate integration and learning. HRM innovation is generally the implementation of human resource management practices that are presentations of important departure from current norms.

Approaches to Measuring HRM Practices (analytics)

According to Marler & Boudreau (2017), HR analytics on the basis of empirical evidence indicates the influence of people data on vital business outcomes. HR analytics can also be referred to as HR metrics, workforce analytics or human capital metrics. It is more of data collection and conducting analysis. HR analytics reflects the desire to use data to inform decision making. In organizations, the analytics are used to rebrand existing function by laying an emphasis on supporting organization strategy and in the process integrates the HR with other business functions.  Logically, in a wider strategic HRM function and HR analytics function may be integrated to aid in developing high performance work practices and commitment based HR systems (Garavan et al, 2016). In identifying the key human capital trends in a business unit, HR metrics dashboard is essential.  There are Five key areas such as; ability to retain talent; leadership depth; employee engagement; spending on human capital and leadership quality that metrics generally covers.

Metrics can be categorized into; metrics of efficiency, metrics of effectiveness and metrics of impact. These categories are based on the nature of what is measured at certain time.

Efficiency

Efficiency metrics focus on ratio of resources to outcomes and speed. These metrics can include measures like time to fill, cost per hire, HR expenses and training investment per high-potential employee. Using these measures, HR functions can manage time wastage, money or effort which is clearly beneficial to an organization. However, in process of avoiding waste potential interpretation on focal processes of efficiency can either be maximized or minimized. Managing of payroll and employee service centers apply the efficiency metrics. A wait-time metric should balance the waste that a wait time represents for an employee against idle agent’s waste in a service center. Metrics of efficiency are designed to generally capture and balance several criteria.

Effectiveness

Measuring the efficiency is accompanied by effectiveness measure of products and services in an organization.  Outcomes desired in HR programs and services are evaluated. Measures such as; differentiation in rewards, quality of hire, availability of key leadership role successors and so forth. These metrics can be set to represent quality of HR efforts in areas such as recruitment, performance appraisal and labor relations. A HR decision maker has to think beyond resources needed in order to create effectiveness measure. Effectiveness require additional manipulation of HR data in order to analyze the data effectively.

Customer metrics

Customer metrics identifies relations between customer satisfaction with HR services and the ability of the HRM system to meet the customer’s needs. These metrics are very effective when it comes to identifying improvement opportunities that improve the quality of HR services.

Process metrics

Process metrics measures output and the efficiency of HR practices. High level issues such as; identification of opportunities, overall volume transaction measurement and effectiveness of process execution are addressed. Insights defined by these metrics include number of HR data errors, variance from compensation and job acceptance rate. In improving delivery mechanisms and HR processes, process metric is important.

Talent metrics 

The competency gaps in the workforce of an organization are identified using the talent metrics. Implications of promotion strategies, different hiring and attrition are among gaps identified by the metric. The metric comprises of retention of high performers, succession plan promotion rates and the share of hiring new employees.

Financial metrics

These metrics quantify the impact and cost of HR practices that consist of the cost of turnover, return on investment, training spend per employee among others. The monetary success of a HR program is determined using the metric thus answering business questions relative to the insights.

HR Leaders

HR measures are focused to tailoring specific leaders who receive information in the organization. HR leaders require insights on the full operation of HR programs. Metrics such as measure of employee diversity, time taken to fill a vacancy and total cost of hiring are relevant to HR leaders.

Non-HR leaders

These are leaders who work in functions outside HR such as site leaders and divisional managers. They require metrics that are relevant to their day to day roles. The measures used are unique to business functions thus poses a difficulty in tracking progress.

Turnover (number of leavers/ total population in the organization)

This metric indicates the total number of workers who leaves a company in a certain year. When turnover metric is combined with performance metric, it can track differences in attrition in both high and low performers. Information about different department of an organization is easily acquired.

Cost per hire (total cost of hiring/the number of new hires)

This metric indicates the costs incurred by the company in efforts of hiring new employees. It serves as an efficiency indicator.

The HR Scorecard

Balanced scorecard generally measures total contribution of the HR measures to organizational performance. The following questions are answered by the balanced scorecard; customer perspective: how do customers view the company? The internal business perspective: what must we top at? Learning and innovation perspectives: Can we create or continue to improve value? Final perspective: what’s our look on shareholders? HR mission or vision is used to deliver a key focus to HR department. To support the HR mission, right compensation system plans should be in place and necessary skills are determined for every role.

Internal BusinessGOAL: adopt an enhanced and new program development to improve quality and efficiency	Customer serviceGoal: improve the customer service continuously for internal and external customers
Work Culture GOAL: Continuously improve the work culture consistently	FinancesGOAL: Generate adequate resources to reinvest in buildings, technology and research

Using the customer perspective measure, two sets of customer are typically represented in a scorecard. First, business partners/ units; HR department is usually expected by other key departments to find the best talent by using even timely hires thus act as a trusted partner in an organization. Second, employees of the company; the HR is looked upon by company’s employees to support the culture, training and fairness in compensation schemes. The knowledge of important issues concerning the both groups of “customers” facilitates satisfaction in the company. HR professions are mandated to listen to amid concerns and give feedbacks to the two groups. 

Financial perspective; cost reduction or management is normally part of the perspective as an organization objects to reducing HR costs. Since the organization can benefit widely by investing in HR, aspects of examining Return on Investments (ROI), time lost in staff vacancies should be balanced with the objective of improving skills of employees. Explaining benefits of HR business activities is important as it is directly related to financial contribution.

Internal perspective; a HR scorecard is different from the general business scorecard in terms of internal perspective difference. Themes like customer management, innovation and cost efficiency are not included in the HR scorecard. The scorecard includes; hiring, developing or retaining talent is important; culture, HR department has programs that shape any performance culture; Communication, information in an organization about strategy, performance and compensation to employees is delivered to the employees by HR department; Training, providing training opportunities to each organization department is a role played by the HR and also determine competency gaps present.

Learning and growth perspective; this applies to HR team members where they acquire skills they require to learn and grow. This perspective is subject to only HR department thus no emphasis should be done for the entire company. The HR scorecard strategy should be tested with the leadership team in various departments to ensure right focus.

References

Aladwan, K., Bhanugopan, R., & D’Netto, B. (2015). The effects of human resource management practices on employees’ organisational commitment. International journal of organizational Analysis, 23(3), 472-492

Arulrajah, A. (2014). Human resource management practices and innovation: a review of literature.

Garavan, T., Watson, S., Carbery, R., & O’Brien, F. (2016). The antecedents of leadership development practices in SMEs: The influence of HRM strategy and practice. International Small Business Journal, 34(6), 870-890.

Kaufman, B. E. (2014). The historical development of American HRM broadly viewed. Human Resource Management Review, 24(3), 196-218.

Lee, Y. D., Lin, C. C., & Huang, C. F. (2017). An overview of contemporary international human resource management studies: Themes and relationships. Library Hi Tech, 35(4), 490-508.

Marler, J. H., & Boudreau, J. W. (2017). An evidence-based review of HR Analytics. The International Journal of Human Resource Management, 28(1), 3-26..

Sanz-Valle, R., & Jiménez-Jiménez, D. (2018). HRM and product innovation: does innovative work behaviour mediate that relationship?. Management Decision.