LEADING global corporations will be increasing their investment over the next three years to measure how people practices such as low turnover, diversity and the engagement of their employees contribute to the bottom line, a recent study has concluded
LEADING global corporations will be increasing their investment over the next three years to measure how people practices such as low turnover, diversity and the engagement of their employees contribute to the bottom line, a recent study has concluded.
Non-profit research firm The Conference Board surveyed 110 HR managers from major companies based in the United States and Europe, and found that people metric projects are increasingly favoured because they help lower costs, improve return on people investments and assist in aligning such investments with business strategy.
While 40 per cent of survey participants consider senior management support to have been high for human capital measures during the past three years, 76 per cent predict an increase in top-level backing during the next three years.
“Human resources leaders need to determine how to link people measures to business processes,” said Stephen Gates, author of the report and principal researcher at The Conference Board.
“They should involve line managers at all stages of the human capital metrics process, seek advice and input from finance and strategy colleagues, and eventually embed people metrics in managers’ bonus plans.”
To gain their support from top executives, HR specialists must demonstrate that people metrics can be successfully aligned with business strategy. But this process is still in its earliest stages at many com-panies according to the results of a recent exercise conducted by The Conference Board.
Although many people measures are cited as currently being used by companies involved in the exercise, few firms feel confident about how metrics relate directly to business strategy.
The study, Linking people measures to strategy, found HR directors are still the primary sponsors of people metrics in most organisations, although 36 per cent of surveyed companies report that business unit leaders are also involved.
Co-sponsored by PeopleSoft, the survey illustrated the importance of human capital management to business’ bottom line, according to Mark Frost, general manager of the Human Capital Management division of PeopleSoft.
“As the service-based economy continues to grow, companies must be more rigorous in how they measure and engage with their employees,” he said.
The study also found that the financial measures of cost reduction and revenue growth are more commonly linked to people metrics than intermediate performance drivers such as process and product innovation and globalisation. However, people measures are more likely to be successfully linked with intermediate performance drivers than financial measures.
Utilising metrics in bonus plans is growing, but is still a minority practice with only 39 per cent of surveyed com- panies reward managers based on people measures.
A number of lessons for managers emerged from the study:
• Involve HR professionals in the development of overall business strategy.
• Enlist leaders from outside the HR department to help develop and back human capital metrics.
• Collaborate with business managers to ensure that people measures link to the strategic goals of business units.
• Focus more attention on the links between people measures and major performance drivers (customer satisfaction, innovation, etc) and place less emphasis on their connection to cost reduction, revenue growth, and other financial outcomes.
• Include human capital metrics in bonus plans.
• Audit metrics (internally and externally).
• Develop ad hoc analytical reports that detail how people investments can deliver business results.
