Hacking HR to Build an Adaptability Advantage

Adapting to business metrics to build trust

Looking at the principles of Autonomy & Trust and Openess & Transparency, my mini hack aims to to establish the credibility and value of HR as a business partner by adapting the language and measurment principles of  the core business.  As long as HR continues to measure itself with the intent of proving its own worth those measurments, those results will be viewed with suspicion and will lack credibility. No one will trust someone who is out for themselves. Metrics that speak about volume of services rendereed or content consumed rarely can be correlated to anything the business measures them selves on and almost never speaks to causation or behavior. By speaking the same "language" in terms of measurments, it's sends the message that core business matters and that HR is on the same team.

The core of my mini hack is for HR to insist on visibility to and an understanding of the company P&L. However, this is not just the costing lines of the HR fuction itself. Just looking at the cost of HR reinforces the perception of HR as a cost center and not as the value building investment core that it should be.

To provide value to to the business, to start to build credbility, HR needs to understand what sucess looks like on the P&L and be able to to to line of business leaders in terms that are expressed and measured on a P&L statement.

HR process being hacked:HR Metrics and Information Systems

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john-mcgurk's picture

Dear all joining this hack because I personally and CIPD see metrics and analytics as the key to organisational effectiveness. Unlike the “Eliminate HR hack” I think management of people and performance in a trained professional function is a must and most organisations agree. We fall down though on how we demonstrate the impact of what we do. Harrisons aim in establishing this hack is to get us into the habit of seeing measurement as a non negotiable part of our day job. Great call.

Thank you John, Happy to have you aboard the team.

heidi-de-wolf's picture

John, It is purely about how it is done. As a self-directed person I measure myself all the time. I weigh myself once a week, I look after my networking via Linked In, I try on a pair of shoes that I know is too small for me, I actively seek feedback from my work colleagues, etc ... . The common thread is that I chose to measure myself.

HR needs to set in place ways people can chose to measure themselves, as their choice to be open to measurement and feedback gains them wider networks with more opportunities. It remains negotiable however the choice not to measure thyself doesn't provide any benefits. This 'nudges' people to become more self-directed in their decision-making and making their own career luck.

As for 'Eliminating HR', if HR is surnominous with traditional thinking than eliminate it by name only. I am a strong believer that revisiting purpose and renaming something can be half the battle in changing it.

Measurement comes in many forms, HR is often the gate keeper of measuring their own effectiveness, and through performance management, the "effectiveness" of people. What HR often fails to to do is to measure the CONTRIBUTION of people to the core business and that is what is at the center of this hack.

I love the rebel punk rock spirit of the "Eliminate HR" battle cry, but geez that is an uphill sell if I've ever seen one.

In over simplified terms, companies make more profit (margin) by:
- eliminating cost
- producing or servicing more
- charging more

Customers pay based on value of the product or service to their lives or there businesses and it's really hard to show how better HR produces products and services that are more valuable (but there are examples). Cost cutting is short sighted and it has a finite end, so that leaves producing or servicing more. That's where metrics start to show some real power. If we can link specific activities and behaviors to business metrics related to revenue, margin, and profit, then we HR has real value in how it designs jobs and functions to maximize returns. How it plans for resourcing, and how it becomes predictive and proactive.

When you have the discipline to have meaningful measurements that the business units understand, they will see the value to and not only will HR be invited to participate, but it will also be demanded.

heidi-de-wolf's picture

May it help to focus on Seth Godin's organisational distinction between Factory and Lab. Does HR need to go from Data Factory, adding to organisational complexity and bureaucracy, to Data Lab, enabling better interdependencies and efficiencies?

bruce-lewin's picture

Hi Heidi,

I'd split hairs about the definitions of factories and labs, but there's no question that focussing on better interdependencies and efficiencies is a sound approach.

bruce-lewin's picture

I think this is a great hack and it'll be interesting to see if this goes forward to the next phase.... that said, it's important to remember the cautionary note sounded by Jeffrey Pfeffer when he wrote...

"Equipping human resource managers with additional analytic tools and language is all to the good, as far as it goes. In the end, however, all one accomplishes is being a more skilled player at someone else’s game. By so doing, one buys into the ultimate sensibility and reasonableness of the basic measures and ideas in the first place; this is often a mistake. Being skilled at the wrong game is not a very promising strategy for either the company or the human resources function. It is unlikely that human resources will ever be able to win playing the number games against those with much more experience who also get to set the rules. Even if they do win, the victory may have extracted a large cost in terms of losing the distinct perspective and competence of human resources in the process of becoming like other staff functions… If all human resources becomes is finance with a different set of measures and topic domains, then its future indeed is likely to be grim."

Bruce, you bring up a good point with Jeffrey Pfeffer, which his “cautionary tale” is a good lesson to take into consideration when implementing or establishing new metrics; however it is important to understand what is being measured. From our engagements with Fortune 1000 companies, quite often we find huge discrepancies in what/how things are measured/reported, especially when multiple business segments are involved – it is then metrics become unreliable or useless, or as Jeffrey Pfeffer put it, a mistake. Establishing what should be measured is critical to the success of leveraging metrics on the balance sheet, especially if an organization’s goal is to transform their workforce from a tactical to more strategic thinking mentality. As global organizations take on human capital transformation initiatives to increase the bottom line and stay competitive, as well as ensure their sustainability – these new line items are the result. Karl Aldrichs presented a compelling topic at the Annual SHRM Conference in Chicago last week regarding the relationship between HR and Finance - which validated the trends we have experienced in our research and client engagements.

bruce-lewin's picture

Hi William, thank you for your comment. I think we could end up splitting hairs over Pfeffer, but anything that enhances the value contributed by HR and affords the function more recognition has to be a good thing in my mind.

Karl Aldrichs presentation sounds good - is there a link to the slides at all?

Harrison makes a great point surrounding HR metrics to build trust within the organization. HR departments (due to multiple reasons), often find themselves managing operational, or tactical, tasks with only top executives/management (or a small percentage) looking at HR strategically. It is the more mature HR organizations that are experiencing significant gains by focusing on increasing their “strategic” percentage through baselines and metrics. These organizations have learned that these key indicators build awareness and focus; and no longer is measuring the impact of HR initiatives, programs and processes restricted to upper management - it allows transparency for all levels of Human Resources and leadership outside of HR to see true costs. Thus establishing credibility, accountability, and enhancing HRs relationship throughout the organization.

For metrics, new line items are beginning to emerge on P&L statements that provide leadership a clearer picture of the impacts, and/or returns of their people investments. “Sales Per Employee-Per Hour”, “Profit Margin Per Person”, “Productivity Gains”, and “Time to Hitting Production Levels” are just a few examples of this emerging Human Capital Financial Statement.

bruce-lewin's picture

Hi William, interesting to read of those new line items on the P&L statement... where have you seen these?

Harrison is spot on in highlighting the P&L conundrum. As a quick Google search of "human capital accounting standards" shows, the accounting profession is grappling with this as a pressing issue, and there is no easy solution - at least from a strict accounting perspective. Yes, it is imperative we get our arms around how to measure return on our greatest area of spend. But it's also a philosophical issue: measuring Human Capital as a liability goes to the root of how business values and behaves toward its people.

Even in today’s knowledge economy, people, and the resources that support them, appear as an ever-growing liability on the corporate profit and loss statement. In board room sessions to increase business profitability, there are two opposing strategies at play – reducing liabilities or enhancing assets. When faced with business downturn or disruption, people are presented to the business leaders as the organization’s greatest liability.

Total Cost of Workforce (TCOW) is a good place to start, when used properly as a productivity measure. HCMI has used TCOW to calculate Human Capital ROI with a direct correlation to improved stock performance. By taking an asset-based approach to Human Capital measurement, we can begin to determine which people investments are giving us the best return - and see if there is some way to replicate and expand those good investments. Likewise, we can take a more laser-focused approach to workforce cuts in areas that are yielding poor returns. This is a much more strategic approach than the typical across the board staff-cutting mandate - and one that has the power to support a greater corporate culture shift around how we talk about and treat our people.

john-mcgurk's picture

Chris yes once we identify the pivotal elements and the departments which are building sustainable people and performance then yes it becomes much easier to use that lens. I suppose the challenge as John Boudreau has pointed out is to get alignment so we don't all deliver a different metric. The co ordination effort will be helped by compelling metrics like TCOW.

Right on, John! This is as much an alignment and cultural issue, as it is a knowledge, systems, and measurement issue. As a matter of fact, if you are familiar with the 6 Boxes performance model, you can go right through and tick off all the factors that have to be in place to gather the information required to calculate and then utilize TCOW to improve performance. There is even a problem with incentives and motivation, because as a rule organizations don't currently measure and reward the right things! My sincere hope is that TCOW is a complex and compelling enough goal that attaining it will drive a sea change in C-Suite thinking around Human Capital.

michele-zanini_4's picture

Hi Harrison, this is a very intriguing mini-hack... would love to hear your thoughts on how we can get a better understanding of how HR impacts the organization's P&L... what are some of the measurements and metrics that we'd need to focus on?



There's a whole evolution of being able to use metrics, but we have to start somewhere. My other mini hack is to gain a meaningful Total Cost of Workforce TCOW metric as a baseline. Leveraging that as a number to help interepret the P&L you can then define and calculate Profit and Revenue per FTE, function, or department. In a control -based HR mode, this tells you where to cut, but in an enabled and predictive mindset, it can also tell you where to double-down investments in people for higher returns.

Profit and revenue are a good starting point, but they are no everything, as you are able to develop more metrics (and built trust and credibility) the tie to productivity, performance, and engagement to line items in the P&L, the rest of the business will take notice.

john-mcgurk's picture

Harrison great call. Many thought and practice leaders have identified this critical need to get HC metrics working with the grain of the business. You cite TCOW and the CFO article which shows the predictive value of measuring HC and linking it. For those who missed it it shows that traditional financial metrics do much less to improve stock performance than key people metrics. For me this is about how we build the alliances of skill and influence to make it work. We at CIPD are collaborating with the accountants body CIMA to build this capability. But maybe if in HR we are weak at metrics we need to pair with those who want people and performance insight. Or at the basic level want to understand the biggest portion of variable spend. A real opportunity. Thanks for sharing your hack. How would we structure and process getting to that situation?

I assume you mean how do we structure a situation inside a corporate entity to define what metrics will be used and what they are comprised of? One way or another you have to build enough credibility where you can get finance and operations at the table together at management level. I would suggest more a of a workshop than a meeting, where everyone is responsible for bringing some data inputs and sharing where they got the data. Then the group can discuss accuracy and reliability of source data and agree which data points should be included and from where. The facilitator can then document the process and define governance for how and how often. Rinse and repeat until you get to the point that HR data enables and drives the organization instead of justifying its own existence.