What is HR’s impact on an organization? Many HR professionals believe that their programs are invaluable. Recruitment programs, skill assessments, leadership development and executive coaching are all examples that are assumed to play a key role in advancing the organization. But do they really matter?
Most people agree that HR plays a critical role in organizations. However, the impact of most HR programs is completely unknown, and that is problematic. If we do not know how people decisions affect our employees, we cannot check their effectiveness, let alone improve them.
Take professional development as an example. Organizations spend on average $1,200 per employee on training and development. This amounts to a yearly spending of $70 billion in the U.S. alone. This is over two times the amount of money needed to end world hunger.
Related: Learn more about Recruiting Metrics
Do we actually know the impact of these investments? The honest answer is that a large majority of organizations have no clue about its impact. Even though HR has extensive knowledge about various training programs and suppliers, it cannot give an indication about the training’s effectiveness, let alone its impact on people decisions. This has some major implications.
Schools grade the assignments our kids hand in. These grades assess a kid’s academic performance and helps it see what subjects it should focus on in order to get better grades. Additionally, the grades give children an indication whether or not they are ready to enter the next class.
This example is no different from the business world, with the exception of people decisions. If you are unable to account for the effectiveness of your budget and the decisions you make, it is almost impossible to improve people decisions and manage human resources effectively.
I frequently talk with HR managers. The majority does not have clearly defined key performance indicators (KPI). I think this is a telling example of HR’s lack of focus on its own effectiveness and impact. This needs to change if HR departments wish to realize a major strategic role in their businesses.
Three steps towards strategic decision-making
In order to assess HR’s effectiveness, HR professionals need to start thinking about three elements every time they make a decision: efficiency, effectiveness and impact. HR professionals are able to play a more strategic role when they include these elements in their everyday decision-making.
HR is generally quite used to think in terms of efficiency. Efficiency is about the time, money and effort that go into HR practices. Questions about efficiency could be:
– “Are our learning and development programs too expensive?”;
– “Do we spend too much time on performance reviews?”;
– “Can we save money by skipping this year’s engagement surveys?”
These questions are very familiar. HR is often regarded as a fee-burner that should minimize its costs and not bother employees and managers too much. Because of this ‘efficiency-thinking’, organizations attempt to save costs and effort by managing HR as economically as possible.
Related: An overview of HR metrics
By focusing on efficiency alone instead of including the effectiveness and impact of people decisions and policies, these companies fail to gain a competitive advantage by leveraging their people strategy. That is why effectiveness and impact are so important.
Do our people decisions have the desired impact? Effectiveness is the second step towards the strategic management of human resources. Some possible questions are:
– “Will our managers become better managers when they take a leadership course?”;
– “Do the sales trainings we offer to our people have an effect on their sales performance?”;
– “Is our current performance appraisal system effective?”;
– “Do our people policies have the effect we want them to have?”
These questions relate to HR’s KPIs. By thinking in terms of effectiveness, HR is forced to consider the effectiveness of their decisions and has to come up with ways to measure them. Obviously, this is easier said than done, but it is not impossible.
By using analytics (read: What is HR analytics?), HR can answer these questions. For instance, learning effectiveness can be measured by assessing competency through self-rated and colleague-rated (180 degree) assessments which are conducted before and after the training.
In a similar way, the effect of a sales training can be analyzed by measuring sales performance both before and after the training.
Related: How to create an HR dashboard
Performance appraisal effectiveness can be A-B-tested by exposing two groups of people to experimental forms of performance appraisal. By analyzing the differences in performance ratings and engagement within both groups, an HR analytics expert can assess the effectiveness of these reviews.
Where effectiveness looks at the results of HR spending, impact has a broader perspective. People decisions can be effective, but that does not mean that they have an impact on the organization as a whole or on its bottom-line performance. Relevant questions are, for example:
– “How do our policies impact our bottom-line performance?”;
– “How will improving a certain people policy benefit the business?”;
– “What is the impact of our annual training budget?”
A friend of mine once told me a story about her cleaning business. In order to retain customers she wanted to raise customer satisfaction, so she started training the customer service employees to provide higher quality customer care. However, contrary to what she had hoped, this had no impact on customer satisfaction (which was measured several times a year).
After talking to a number of customers, she discovered that the cleaners made the biggest impact on customer (dis)satisfaction, not the customer service employees. The cleaners were the people who worked in the homes and offices of the customers and who had customer contact. They needed to be flexible when office workers put in overtime or when home owners came home earlier. This often conflicted with cleaning schedules.
The problem was solved by training the cleaners in customer etiquettes and providing them with more autonomy on scheduling options. This had a tremendous impact on customer satisfaction and customer retention.
Analytics is a way of thinking
In order to fully assess effectiveness and impact, you need to have some metrics and analytical capabilities. HR needs these capabilities to become a data-driven decision science. This blog is, however, about the step before that: HR needs to change the way it thinks so as to become a truly strategic force.
By thinking in terms of effectiveness and impact, HR constantly has to analyze what their people policies do for the company as a whole. This trains HR professionals into thinking about the evaluation and measuring of the effectiveness of every day decisions. This way of thinking is the first crucial step in applying analytics.
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