Friday, December 7, 2007

Integrating HR into business performance measurement

To integrate HR into a business-performance measurement system, managers must identify the points of intersection between HR and the organization’s strategy implementation plan. We can think of these points as strategic HR deliverables, namely, those outcomes of the HR architecture that serve to execute the firm’s strategy. This is in contrast to HR “deliverables"? that focus on HR efficiency and activity counts.

These deliverables come in two categories: performance drivers and enablers. HR performance drivers are core people-related capabilities or assets, such as employee productivity or employee satisfaction. Even though these may seem so important as to be generic, there is actually no single correct set of performance drivers. Each firm custom-identifies its own set based on its unique characteristics and the requirements of its strategy implementation process.

Grasping the relationships among key success factors is essential for measuring HR’s traditionally elusive role in driving organizational performance. Once a company firmly anchors HR in its strategy implementation system, it can then see the connections between HR and the company’s success drivers. By measuring HR’s effect on these drivers, the firm can quantify HR’s overall strategic impact.

We thus recommend that HR managers divide their key efficiency metrics into two categories: core and strategic. Core efficiency measures represent significant HR expenditures that make no direct contribution the firm’s strategy implementation. Strategic efficiency measures assess the efficiency of HR activities and processes designed to produce HR deliverables. Separating these two helps you evaluate the net benefits of strategic deliverables and guides resources – allocation decisions HR efficiency reflects the extent to which the HR function can help the rest of the firm to generate the needed competencies in a cost-effective manner. This does not mean that HR should try to simply minimize costs without attention to outcomes, but neither should they “throw money off the balcony? The metrics included in this category should reflect that balance.

Enablers reinforce performance drivers. For example, a particular change in a company’s reward structure might encourage preventive maintenance rather than reactive maintenance. An emphasis on preventive maintenance might in turn “enable"? a performance driver called “on-time delivery? Any performance driver may have several enablers. The enablers themselves, in isolation, may seem mundane, but as we’ll see their cumulative effect can have strategic importance.

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