Posted in Human Resources Articles, Total Reads: 3117
, Published on 09 January 2012
The term “Strategic HR” is enthralling. Anyone and everyone in HR industry love to use this term and why not? A Human Resource Manager should be termed as ‘Strategic’. I say this with utmost conviction because it is the HR function, which manages the most important asset of any organization i.e. “The People”. However, many companies do not give due importance to Human Resources. This is primarily due to various reasons such as:
The work of the HR function is not measurable.
HR is thought of as a cost centre.
HR is just and administrative function.
The above list of reasons, by no mean, is exhaustive but they certainly are three most important reasons that can be attributed to HRs, as a function, inappreciable role. This article will try to posit some important ways in which the HR can position itself as an important function in any company across any industry.
A very important feature for any function is that the work/tasks they do must be measurable. The top management understands ‘numbers’. The HR must understand the needs of its internal customers. The decisions carried out by the HR must have its premises in terms of Data and Gut. To understand how this can be achieved, we will understand metrics related to various areas under the ambit of HR.
Human Capital Return on Investment (HCROI)
The rate of return for each dollar invested in employee pay and benefits, based on pre-tax profit. HCROI can be used to portray the effectiveness of people practices as well as the overall effectiveness of the business in deploying and supporting its people to create value. The result if reported as a percentage. For example, a 50% return is equivalent to a profit of 50 cents for every dollar spent on compensation.
HCROI = Revenue – (Expenses – Pay & Benefits)
Pay and Benefits
Labour Cost Revenue Percent
The total cost as a percentage of organizational revenue, or, how much you spend on salary and benefits as a percentage of the revenue generated. The metric can be translated as the amount of investment in your employees required to generate each dollar of revenue. In a gist, this metric can show how well your pay for performance system is working. Higher the
Labour cost revenue percent suggest the employees are less efficient and may benefit from trainings, improved processes or better technological support.
Labour cost revenue percent = Labour cost *100
The percentage of positions for, which, recruitments are actively going on till the end of reporting period. The metric conveys the amount of recruitment requisition that have been approved and where the recruitment process is currently underway. A higher vacancy rate, combined with higher external time-to-fill rate signifies a labour supply issue. It could be that the organization has a problem attracting good candidates.
Vacancy Rate = Total number of vacant position as of today *100
Total number of positions as of today
HR Efficiency Metrics
HR cost per employee
The cost of creating, implementing, and administering HR programs for each employee, including benefits, compensation, employee call centre, HRIS, organizations development, recruitment and retention. This metrics presents the efficiency of the HR function in any organization. A higher HR cost per employee does not mean poor effectiveness of HR. This cost should be judged vis. a vis. Number of employees, productivity, retention metrics.
HR Cost per employee = Total labour cost of the year
Avg. Number of Employees
The above mentioned are few important metrics in each area of HR. However, by no means the metrics which are explained in the article are exhaustive. By using HR metrics, an HR manager can turn the human resource data into meaningful information about the human capital of an organization. To glean true knowledge from metrics, one can:
View organization’s trends over time with internal benchmarking;
Collaborate one or more metrics to better understand the complete picture, and;
Compare the organization’s result to the rest of the industry, sector or similar organizations, using external benchmarking.
Any organization that tracks metrics is encouraged to forecast its human capital performance. We might, in foreseeable future, see organizations coming up with Human capital reports to position itself as a brand in various spheres such as Stock Markets, Talent acquisition etc. Hence, the role of HR is of utmost importance. The saying, “Change is the only constant”, is very important in this context and the HR needs to constantly innovate to be seen as ‘Strategic’.
This article has been authored by Arun Taneja from IIT, Kharagpur.
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