Friday, 25 January 2008

Benchmarking the HR function

XpertHR cover an IRS survey on HR benchmarking.

It finds:

"Seven out of 10 respondents make some attempt to measure the effectiveness of their HR function. Around half those that do so (33.6% of all panel members) said they use formal measures, while the remainder (36.6%) said they use informal measures.

This leaves around three out of 10 (29%) of our panel working in organisations that make no attempt to measure how effective their HR department is."

Fine, but actually it's only the fifth and last two bars on the graph which measure HR effectiveness (spending against budget, HR's role in decision making process - which I think it an excellent measure - and benchmarking performance against other HR departments).

The other bars relate to:

  • Human capital measures: staff turnover data, absence management data, disciplines / grievances data.

  • HR activity measures: exit interview feedback, time to fill vacancies data.

Results of employee surveys and anecdotal / informal feedback are interesting - these could relate to human capital or HR activity measures depending on whether they ask about the individual (eg are you proud to talk about the organisation with your mates in the pub, are you planning to leave in the next two years), or about how the individual is treated (eg did you have an opportunity to input to your performance appraisal).


  1. Hi Jon

    I was introduced to the idea that HRM is the management of the supply and demand of labour by Michael Riley at the University of Surrey. I find Sales/HR costs to be a useful metric.
    When I first started using it, two things quickly became apparent.

    1. Sales and HR Costs are almost perfectly correlated. You have to spend money to make money. To improve the ratio, we need to improve our productivity, i.e., our ability to manage the intricate processes of the business. That brings HRM directly into the business conversation.

    2. The ratios vary quite a lot even within a firm. Take a supermarket chain. Some outlets are simply in a better location. Equally costs may be high or low for all sorts of reasons - e.g., staff might have longer tenure, and we aren't going to meddle with that for the sake of a number. So this ratio is not carved in stone. It simply helps me ask questions and my question asking helps managers understand how HR interacts with a lot of other factors to contribute to their results

    I use other quants as well to help us explore the operating of a business unit. My focus though is on lead indicators that help us take part in the business conversation and facilitate concerted action.

    The prize is better performance of the business unit. We will have played our small part and join in the party to celebrate!

    I like figuring out metric reports so if anyone wants to collaborate, I am game.

  2. Hi Jo,

    I agree. We need to get organisations much more focused on lead indicators, and understanding the link between these and their final business outcomes.


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