HUMAN RESOURCES SECTOR
Human Resource (HR) metrics are measurements used to determine the value and effectiveness of HR initiatives, typically including such areas as turnover, training, return on human capital, costs of labor, and expenses per employee.
Human resources strategy is tied increasingly to the strategic success of a company as a whole, but many business owners still think of HR's effectiveness as unquantifiable.
The success or failure of an HR strategy can be measured and analyzed, and by analyzing what the metrics have to say, HR can demonstrate its strategic importance.
Any HR process can be measured in terms of efficiency, effectiveness and impact on the company's strategy.
Gauging these factors produces a set of metrics, or standards of measurement.
One common hiring metric is cost-to-hire: If an art supply store needs to hire a new retail sales manager, the HR department can measure the cost of running advertisements, conducting interviews and making a final decision to determine the total cost of the new hire.
A low cost-to-hire is efficient and a high cost-to-hire is not, but this doesn't necessarily imply that lowering the cost-to-hire should always be top priority.
If the new sales manager improves store sales, the hiring decision was an effective one.
If she fails to do so, the hiring decision was ineffective.
In some cases, an inefficient hiring decision could be more effective than an efficient one because the company benefits from hiring the best retail sales manager available, even if the cost-to-hire is high.
However, a high cost-to-hire is more difficult to justify if the impact of the position is relatively low.
Strategic HR is all about finding the areas that have the greatest impact on company strategy and then making strategic changes in HR policy as needed.
An HR department without a strategic mindset might measure the efficiency and effectiveness of hiring decisions but fail to consider their impact on strategy.
For example, if retail sales are a high percentage of total sales, the effect of hiring the best retail sales manager is correspondingly high; however, if Internet sales are more important, the impact of hiring in retail sales is relatively low.
It might not make much sense to put a lot of resources into finding the best retail sales manager if the impact of this hiring decision is not high enough to justify the expense.
HR managers can apply the scientific method to their use of HR metrics -- based on observation, hypothesis, experimentation, data collection and data analysis.
For instance, the HR manager of the art supply store might observe that Internet sales have become a larger percentage of the business and hypothesize that hiring an Internet marketing manager would result in higher profits.
He can advise the owner to hire an Internet marketing manager to test his theory and then track the company's sales compared to the cost of hiring and retaining the new manager.
If the results confirm the hypothesis, the strategy was successful.