The quote by business guru Peter Drucker “[only] what gets measured, gets managed” can be applied to every area of business operations, including people operations.
It is virtually impossible to improve people operations and the value you gain from people assets without measuring the outcomes and resulting performance. If you do not define what good contribution looks like and a way you can measure it, how will you know if you’re doing well?
So HR professionals must develop key performance indicators (KPIs) and metrics to track their progress toward meeting business goals.
Human resources metrics must go beyond efficiency metrics, such as time to hire. Without identifying more strategic KPIs that matter to current business goals, HR will be relegated to a more tactical role.
Every HR metric needs to be understood within the context of the business—for example, how efficiency metrics such as onboarding and hiring support faster revenue growth. Metrics focused on HR activity and processes help the business scale operationally in its later stages of growth.
Human resources metrics also focus on building a solid employee experience and track HR outcomes, such as employee engagement and retention. These are key to building a best-in-class culture that attracts and retains top talent, and gets recognized through external awards.
Lastly, HR needs specific KPIs that are included in the quarterly executive review and directly link to current strategic goals. Think about the leading HR indicators of performance for your business—for example, does the turnover rate of the sales team directly impact its ability to increase revenue? The productivity gains of the development team allow the product to be enhanced faster and market share to be gained. The HR value chain below illustrates the three types of metrics you should track.
Tip: As you invest time in tracking HR metrics, ask yourself how each of these metrics or KPIs are important to your business.
Ultimately, KPIs and metrics help you constantly improve your people operations and have a greater impact on the business. They help the organization make more data-driven decisions, and give HR executives more influence to guide the team to the right decisions. A combination of data trends, storytelling and data visualization can help you make your case more easily.
Lexy Martin, a veteran HR technology analyst and thought leader, suggests organizations that leverage data in their decision making have a 79% higher return on equity than all other organizations. This suggests investing in HR analytics enables superior performance.
Specifically, companies that are leaders in workforce analytics have:
Metrics and KPIs should be viewed over time and compared quarterly and year over year. This can help you see patterns that are increasing or decreasing. To understand why these changes are occurring requires statistical analysis and further segmenting your data. For example, reviewing tenure in years one, two, three and so on instead of calculating it solely based on averages. This will provide you with data on where tenure is lowest and allow you to investigate further. The same should be done for turnover, which can be segmented by different demographics (such as gender, age or experience) or personas (including executive, high potentials and new employees).
A KPI and metric scorecard based on your current business outcomes is the best place to start. An example of a People KPI & Metrics scorecard is shared here, but be sure it’s relevant to your own business goals. A scorecard should include your baseline numbers, aspirational but doable targets and external benchmarking data, if you have any.