HR: Value or Expense? Measuring Future Business Relationships Presentation to the 2001 HRINZ Conference of the Results of the National Baseline Survey on Valuing Human Resources by Paul Toulson (College of Business, Massey University) and Philip Dewe (Birkbeck College, University of London)

Introduction  Measuring HR in terms of business metric The subjectivity myth  Marginalisation of HR  The implicit realisation that value in 21 st Century is created by and through people I know that you are not going to believe this, but..

State of Play Link to competitive advantage through employee commitment and capability. Recognition of importance of human capital. The importance of measurement and approaches. Human resource accounting: Knowledge-Based Assets, Value-Based Management. Other measurement approaches. Where are we at in New Zealand?

Aims of Study What New Zealand organisations are doing to measure HR results? How critical do they consider HR measurement to their management and success?

The Sample 34% 21% 45% gement

Top Five Principal Reasons for the Importance of Measuring Human Resources HR should be accountable (89.6%) People skills and knowledge most important source of sustained competitive advantage (84.7%) Understanding the value of people focuses us on future human resource needs. (76.7%) Measurement of human resources gives management needed information to support business strategies (74.3%) Enables management to make better informed decisions. (72.2%)

Factor Analysis of the Sixteen Statements About The Importance Of Measuring Human Resources Reason 1 (Measurement Reflects The Strategic And Competitive Importance of Human Resources) Reason 2 (To achieve credibility human resource management must be expressed in financial terms) There are two principal clusters

Top Five Reasons Why Organizations Do Not Measure Human Resources  Current HR measures lack precision (58.8%)  Current HR measures are not widely accepted (50.56%)  Current HR measures lack reliability (40.4%)  Insufficient time to develop appropriate HR measures (40.1%)  Current HR measures lack validity (38.5%)

Three Principal Reasons Given To Justify Why Organizations Do Not measure Human Resources Reason 1 (Human resource measures lack precision) Reason 2 (Human resource measures are too difficult) Reason 3 (Human resource people lack expertise)

Perceptions of Importance of Measurement at Different Levels in the Organisation Human Resource Management (50.0%) The CEO (44.4%) Partners (33.2%) Senior Management (32.8%) The Board of Directors (25.8%) Line Managers (21.1%) Financial Management (17.9%)

The Most Frequently Used HR Measures Accident frequency rate (60.3%) Client satisfaction surveys (60.1%) Absenteeism rates (56.3%) Training and education costs (56.0%) Cost of People (53.9% ) Competencies (53.2% ) From some 32 measures, we found that the six most frequently used ones were…

The Most Infrequently Used HR Measures Training costs (4.9%) ROI in human capital (9.0%) Value added per employee (9.3%) Time to fill job (11.9%) Return on training (11.9%) Seniority (14.4%) …while the six most infrequently used measures were..

The frequency with which the top 6 measures are taken expressed as a percentage MeasureDailyWeeklyMonthlyQuarterlyAnnually  Accident frequency rate  Client satisfaction surveys  Absenteeism rate  T raining and educational costs  Cost of people  Competencies

The Measures That Should Be Used But Currently Are Not Return on training (33.6%) ROI in human capital (31.3%) Turnover costs (29.95) Cost per hire (28.7%) Innovation (28.4%) Cost-benefit analysis (28.2%) This is what we should be measuring…!

Importance of the Different HR Measures by Your Industry Sector Client satisfaction surveys (52.1%) Competencies (42.9%) Leadership (41.2%) Job satisfaction (40.1%) Accident frequency rate (35.1%) The top five HR measures thought to be important by the industry sectors of the respondents were…

Business and Financial Services Community, Social and Personal Services Manufacturing Client satisfaction surveys (57.6%) Client satisfaction surveys (54.9%) Accident frequency rate (67.6%) Competencies (52.3%)Competencies (41.5%)Client satisfaction surveys (38.0%) Leadership (48.4%)Learning (40.2%)Leadership (36.6%) Job satisfaction (46.5%)Leadership (38.0%)Absenteeism (32.4%) Learning (41.9%)Job satisfaction (37.8%) Competencies (31.0%)

Factor Analysis of How Important The Different Measures Of Human Resources Are Considered To Be Group 1 (Human Resource Costs/Information) Group 2 (Return on Investment) Group 3 (Individual attributes/potential) 3 Groups of HR Measures

Are there Differences Between Human Resource Management, Accounting/Finance Management and Line Management in Terms of Issues Surrounding Human Resource Measurement?

On the importance of measuring human resources HR managers and line managers are more likely to see the importance of measuring human resources than are accounting/finance managers

On reasons for measuring human resources HR managers and line managers are more likely to agree that measurement reflects the strategic and competitive importance than are accounting/finance managers HR managers are more likely to agree that to achieve credibility human resource management must be expressed in financial terms than are line or accounting/finance managers

On why organizations do not measure human resources HR managers are less likely to agree that human resource measures lack precision and thus a reason for not measuring them than are either line or accounting/finance managers Accounting/finance managers are more likely to agree that human resource people lack expertise when it comes to measuring human resources than are line managers

On the Importance of different measures of human resources HR managers are more likely to see the importance of measuring human resource costs/information than are either accounting/finance or line managers Accounting/finance managers are less likely to see the importance of measuring individual attributes/potential than are either human resource managers or line managers

Conclusion So what can we conclude from these results?

Questions What are the implications of these results for you as HR practitioners? What do you think should be measured in HR, and what should be done with the information once collected?