How to measure HR effectiveness
A key responsibility of human resource leaders and consultants is to articulate the logical connections between progressive HR practices and firm performance, and they need to demonstrate those connections with data, according to Wayne Cascio and John Boudreau in their book Investing in People: Financial Impact of Human Resource Initiatives. The book suggests a number of analytical techniques which can be used to provide the necessary data to answer such questions as:
- What is the actual cost to the business of employee absenteeism?
- How much do employee separations cost the business in terms of lost productivity?
- What is the cost-benefit ratio of an employee health and wellness initiative?
- How can a business measure the financial impact of employee attitudes?
- How can the outcomes of a work-life program be analysed and measured?
- What are the costs and benefits of employee recruitment and selection efforts?
- What are the costs and benefits of training and development programs?
In my view the authors make a convincing case for the importance of gathering data to provide a quantitative estimate of the effects of various HR initiatives. However many of the recommended analyses involve complex statistical calculations based on highly subjective (and therefore imprecise) data, and the results are likely to be unreliable if the underlying data is unreliable. This does not mean that measurements should not be attempted, but it does mean that simple analysis may be sufficient and the degree of data reliability should always be kept in mind. The particular analytical techniques recommended by the authors are probably more useful for very large organisations (with large sample sizes) than for smaller ones.
Exercises are provided at the end of each chapter, enabling the reader to try out the calculations recommended by the authors. The book refers to a website which is said to contain software for calculating the answers; I was unable to find any such software at the URL given. In my opinion the book is most useful for the ideas which it provides about the sorts of things HR professionals should be attempting to measure and calculate.