Numbers behind HR
Traditional HR benchmarking focuses on two things: cost and headcount. This approach focuses attention on HR’s efficiency, not its effectiveness, and seldom reflects HR’s effort to become a transformational, strategic part of the business. When HR focuses on the cost and the elapsed time it takes to deliver services, its focus is strictly operational — and when cost and effort dominate HR’s contribution to designing new programs or deploying improvements, the opportunity to boost business performance gets less attention.
When companies make initial forays into benchmarking HR effectiveness, they survey customer perception. This provides input into growth and development, as well as the way investments are prioritized. Some use balanced scorecards to focus on metrics like speed to productivity, while others commit to fill positions within a set time through service-level agreements. These are all good starts, but none of them takes the next necessary step: demonstrating the business value of the HR functions being measured.
HR leaders should broaden their benchmarking horizons to help chief officers (CXOs) see the beneficial impact of their activities on the business as a whole, not just the table-stakes categories of cost and headcount often derived sought in benchmarks.
This change in perspective not only coincides with fundamental changes in the way companies conduct business and perform in the marketplace, but also measures the degree to which HR functions as a strategic business driver. Both of these shifts are beneficial in a time when revenue and market growth, globalization and increasing demands for innovation through a contracting labor market combine to increase the relevance of business drivers like profitable growth, globalization, innovation and talent development. Fundamentally, contributing on a strategic level means driving business performance through HR programs. Tied to benchmarks, key performance indicators and other measurement systems demonstrate the business impact of HR and represent a departure from traditional efficiency-based view. Thus, expanding HR’s benchmark activities beyond cost and headcount aligns HR’s efforts in solving business-related problems through deployment of programs while measuring the effect of those programs.
Make no mistake. Measuring cost and headcount is important. Cost effectiveness, speed and compliance are required components of HR‘s core mandate. However, over the past 20 years, business leaders have come to expect this as a matter of fact. The days of recognizing HR only for first-quartile cost structures, correct and on-time payment and being compliant with the myriad of people-related laws and regulations are over. Nor should anyone say HR can’t benefit from traditional benchmarking — if nothing more, it addresses the 30-second question, “Do our HR organization’s costs and delivery times compare favorably to other organizations’?” Benchmarking can provide that quick answer, but delving into what matters — how HR can respond to today’s market challenges — requires a new type of measurement system along with a new way of thinking about benchmarks.