Author Archive

The Best Metric for HR Effectiveness: Revenue per Employee

Tuesday, September 18th, 2012

I recently did a quick Google search on the number of different HR metrics out there to “help” HR professionals better measure their effectiveness, their return on human capital, etc. I found 441 on one list. Holy cow! No wonder many HR Pros struggle with metrics…

The problem with many HR metrics is they are just that, HR metrics (versus business metrics). We struggle to explain their relevance and bottom line impact to our C-Suite executives. If you could only pick one metric, or perhaps more appropriately only had time to measure one metric, I would submit that Revenue per Employee (RPE) would be it. It’s been around forever and is well understood in B-schools. Just take the revenue produced by your company or business unit and divide it by your total number of Full Time Equivalent (FTE) employees.

Many HR activities impact both sides of the equation and it’s our job as HR Pro’s to show our executive teams how. Employee Performance, Innovation, Sales, Culture, Employee Engagement, headcount, turnover, recruiting effectiveness, supervisory skills, training programs, etc. They all impact RPE.

How to use it… Just compare your number over time – is the number going up or down. Go online and find out what your industry averages look like. How do you stack up? You can also use RPE to help justify your next HR initiative. RPE thinking can help you determine if your department is focused on the right priorities. Try it out!

I’d love to hear from companies using RPE in their HR strategic planning. Please share!!

Photo Source: Victor1558

Human Resources Strategy for the Rest of Us

Tuesday, February 22nd, 2011

A practical approach to becoming a key strategic player in your organization.

In part one of this post, I encouraged HR professionals to avoid the red herrings that distract you from maximizing your organizational impact.  So what should HR professionals be focusing on?

I believe it’s improving the most important asset the company invests in – its people.  The adminstrivia around HR can be like kudzu taking over and killing any strategic inclination many HR professionals have.  Believe me, I’ve been there.  But by focusing too much on administrative tasks, whether by choice or force, we lose sight of what my dad knew 30 years ago as an HR professional and what Gallup and others now proclaim (and charge big bucks for).  And that is the simple fact that companies that practice positive HR and people management have more engaged employees.  More engaged employees result in more engaged customers.  More engaged customers mean higher sales.  Higher sales mean higher profits (usually).

“Positive HR and people management” put simply is a strict focus on recruiting and retaining top talent leading to an engaged workplace.  Gallup has found that almost 20 percent of employees are actively disengaged, costing companies $3,400 for every $10,000 in salary in lost productivity.  A recent Cornell University study found that companies practicing positive HR and people management had 22 percent higher sales growth, 23 percent higher profits, and a 67 percent drop in employee turnover.  Bottom line, it’s in your best interests and your company’s best interest to focus more on engaging employees and less on the administrivia.

I doubt few HR professionals would disagree with the benefits of employee engagement.  Understanding is the easy part; however implementation is tricky, particularly if you work in a company that doesn’t yet subscribe to the benefits of positive HR and people management.  I will concede that some companies will never buy into positive HR, so how can the average HR professional in the average company really impact employee engagement?  Well, two primary ways – first, only hire people that match the critical success factors for your positions.  Quit focusing so much on how applicants meet the “job description” and focus more on their past success and how that matches the success you need in the job.  I’ll discuss this topic in an upcoming blog.  Stay tuned.

If you can find top talent but can’t keep them, you’ve got a bigger problem.  That’s why I feel the most important thing you can do right now to impact engagement is to become what I call the “Chief Supervisor in Charge.”  Focus on improving every aspect of the performance of your supervisors and managers.  There have been countless research studies showing how important people’s supervisors are  on their decision to stay, their productivity, their morale, how they view the company, how they treat customers, etc. —in short their engagement (and the company’s profits).

So how do you measure up?  Ask yourself a few simple questions.

1.      Are you focusing on improving the effectiveness of your supervisors and managers or rather on constantly telling them what they can and especially what they cannot do?  Put differently, are you primarily a coach or a cop?

2.      Do you conduct more supervisory and management training on harassment, workplace laws, permissible interview questions, etc. or more on helping your supervisors and managers become more effective communicators, motivators, counselors, performance coaches, etc.?  It’s all important, but you choose where to focus more attention, the culture you create and the results you’ll see.

3.      Are you modeling the effective behaviors you want from them as employee situations arise or are you beating them over the head for the mistakes they make?

4.      Do they see you as a partner, a valued confidant or as an irritant?  Don’t know?  Ask them.

5.      Are you weeding out those supervisors and managers who don’t share the company’s values, or do you just continue tolerating them while they poison everyone else?

6.      Are you measuring the impact of your supervisor and manager behaviors with regular employee surveys, exit interviews, focus groups, etc.?

I could go on, but I think you see the point.  If you don’t know where or how to start, consider conducting an employee survey.  When done correctly, employee surveys can give you a quick read on supervisory and management effectiveness and also how you measure up on employee engagement.  You can also look at your turnover – many times that results from poor supervision.  Find out why people are really leaving and the costs to your organization.  These tools are good ways to help you make the case to management that you should be spending more time improving supervision.

To wrap up, when I talk to HR professionals that are in fact “at the table,” they spend the bulk of their time either finding top talent or, as I’ve discussed, keeping and motivating top talent.  They try to outsource the administrivia.  Surprisingly, you don’t need a lot of extra money or perks to retain key talent, but you do need a great work environment, and that starts and ends with very good supervisors and managers.  They are the key.  In fact, Gallup maintains they are the company for most of your employees.  Spend more of your time coaching them and you’ll quickly find yourself in the middle of the game, at the table, and helping your company grow and succeed.

Photo Source: Wikimedia Commons

Good Strategic HR Discussions? Or Just Dead Ends?

Tuesday, February 15th, 2011

Back in 2005, Fast Company magazine published the now famous (or infamous depending on your perspective) article entitled “Why We Hate HR.”  The basic premise was that HR professionals are good at transactional “administrivia” like pay, benefits and retirement (all functions that are being outsourced) but lack the skills (or interest) necessary to play a more strategic role in managing talent.   Since then, thousands of articles, presentations, webinars, conferences and the like have advised HR professionals on what they need to do to “get a seat at the [executive] table.”  Most advice, while good, follows a few key themes and in my opinion either distracts our attention or confuses us.

Theme 1: To get a seat at the table, you must talk the language of business. If you want to be taken seriously you must understand financial statements, gross margin, EBITDA, return on investment, depreciation, cash flow, retained earnings, etc.  These terms are important, and I agree that HR professionals need to improve their business acumen, but just because you can explain how to play the game doesn’t mean you will be able to play the game or even be put in the game for that matter.

Theme 2: To get a seat at the table, you must align HR Strategy with business strategy and overall think and talk more strategically. Ever sit through a presentation on HR strategy?  I’m an educated man, but frankly, I don’t understand half of what they’re talking about.  I hear a bunch of words like synergy, value added, key performance indicators, knowledge base, alignment, etc. and of course a bunch of fancy charts and diagrams.  In the Fast Company article Keith Hammonds describes an HR strategy presentation he sat through: “There is mention of ‘internal action learning’ and ‘being more planful [sic]in my approach.’ PowerPoint slides outline [the company’s] initiatives in performance management, organization design, and horizontal-solutions teams.  [The presenter] describes leveraging internal resources and involving external resources — and she leaves her audience dazed. That evening, even the human-resources pros confide they didn’t understand much of it, either.”  Strategy is very important, but we’ve overcomplicated it and we spend way too much time trying to describe what “IT” is and how we need more of “IT.”  People in the real world don’t have time for that.

Theme 3: To get a seat at the table, you must become certified and the more initials the better. PHR, SPHR, GPHR, CEBS, CCP, MBA, etc.  Isn’t it funny how some of the most successful people in the United States never graduated from college?   People like Bill Gates, Michael Dell, Steve Jobs, Larry Ellison and Richard Branson to name a few (I know a few of them later earned honorary degrees – but you get the point).  Don’t get me wrong, I’m a big fan of higher education and have a few initials myself (MBA, SPHR), heck, we even have a highly successful HR certification prep course here at CAI, but that alone will not help you get, or keep, a seat at the table or to become more strategic.

Theme 4: To get a seat at the table, you must implement HR Metrics. To get a seat at the table, you must develop a robust HR scorecard and track those key performance indicators that result in HR success.  Turnover, absenteeism, time to hire, cost to hire, HR as a percentage of payroll, etc.  While I’m a big fan of numbers (thanks to my mom the accountant) and I firmly believe what gets measured gets done, developing really good and relevant HR metrics is hard and tracking them even harder.  I’m not saying you shouldn’t develop them, just don’t start here.

Theme 5: Forget it, you’re not getting a seat at the table so complain about it – blame the company. I hear a lot of HR professionals complain about their companies, their management teams, the CEO, etc.  “I would love to be more strategic but my company just doesn’t understand the value of HR” or, “We don’t have the money to spend on training, day cares, health care centers and the like.”  So basically, it’s the company’s fault you’re not more strategic. Fortunately, there are plenty of HR support groups out there to help you refine and develop your own sad story if you are so inclined.

Ok, so with all the books, articles, presentations, consultants, etc. out there telling HR professionals how to be more strategic, how to get a seat at the table, and how to be a key business partner, why is it that many still aren’t?  I’ll address that in my next post.

Photo Source: U.S. Department of Defense

Recent Studies: Better Management Equals Better Financial Results

Monday, April 12th, 2010

Recent research studies from Cornell University and RainmakerThinking, Inc. point to direct links between how well organizations manage employees and their financial results.

The Cornell study of small businesses (average size of 53 employees) found that companies implementing effective employee management strategies experience 22.1% higher revenue growth, 23.3% higher profit growth and a 66.8% reduction in employee turnover compared to companies that don’t.  Workforce alignment practices in the areas of employee selection, people management, and motivation had the most impact on business results.

The most influential strategies include:

  1. Basing recruitment on organizational fit rather than on just job skills.
  2. Using self-management rather than a controlling management strategy, giving employees greater discretion in how they work.
  3. Creating a family-like environment/community to motivate and retain employees rather than focusing on just pay as a motivator.

The second study, by Bruce Tulgan and RainmakerThinking, Inc. , found that increased supervision and management was the number one most effective business strategy during the economic crisis of 2009.  The findings are based on a study of thousands of managers from organizations in the private, public and nonprofit sectors. You may recognize Bruce Tulgan – he was a keynote speaker at CAI’s 2008 HR Management Conference.

The research found that leaders and managers were likely to pursue at least one of three strategies to survive during 2009:

  1. Cost cutting;
  2. Innovations other than cost-cutting; and/or
  3. Increased supervision and management, including more one-on-one training, direction, and feedback from managers and/or more written tracking of individual performance.

Managers who pursued all three strategies reported having the strongest bottom line financial results in 2009.  The individual strategy that had the biggest impact on results was better management.

Photo Credit: nDevilTV