Guide to Measuring HR Effectiveness - Why is it important?

The business case for measurement

HR measurement is important for three principal reasons:

  • Ensuring HR resources are managed effectively
  • Assessing the impact of HR activities on people, performance and the value of human capital
  • Understanding the impact of people on business performance

1. Ensuring HR resources are managed effectively

The HR department needs to manage its own resources effectively and show how its activities add value to the organisation. HR needs to minimize its costs as a corporate ‘overhead’, provide excellent service to its internal customers and ensure HR initiatives are cost effective. This is especially important in the current climate where resources are scarce and the priority is to maximise resources devoted to front line services.

Alignment with business strategy

The ultimate aim of all HR activity is to enable the organisation to deliver its business strategy. HR resources need to be focused on supporting that goal and need to be aligned to it. However, far too often HR activities are created in their own right, independent of the business strategy and the requirements of the organisation. HR measures need to show what is being achieved by HR and at what cost.

HR policies and practices need to be aligned ‘vertically’ to business strategy through a human resources or human capital strategy. HR policies and practices also need to be aligned ‘horizontally’ to provide a coherent framework for people management and development. This means different HR activities contribute consistently to achieve the same objectives and outcomes. For example the performance management process needs to reinforce learning and development and encourage regular attendance. In this way HR resources are optimized and focused on business results.

An effective process for identifying measures provides a means to ensure vertical and horizontal alignment of HR activities to support the business strategy and reinforce one another.

2. Assessing the impact of HR activities on people, performance and the value of human capital

HR needs to assess the impact of HR activities on the people in the organisation – are those activities making a difference and adding to the value of human capital?

People mean results

Research by the CIPD and many other organisations has demonstrated the links that exist between HR policies, processes and practice, people management and development, and organisational results. These practices have been shown to make the greatest difference to business performance of all the factors considered (e.g. strategy; technology; research and development; quality management). HR measurement seeks to track and evaluate the impact of HR and people practices on the recruitment, development, performance and engagement of people.

3. Understanding the impact of people on business performance

The organisation needs to understand and manage how people contribute to organisational results – as leaders, managers and individuals.

The People and Performance link

CIPDresearch[1]has identified a model of people and performance that describes the nature of the links between people and results. The research shows that people performance is founded on Ability + Motivation + Opportunity (or ‘AMO’):

  • Do people have the necessary ability to do the job?
  • Do they have the motivation to perform?
  • Do the have the opportunity to deploy their skills in the job?

Consequently organisations need the HR policies and people management practices to create the conditions for AMO that leads to increased ‘discretionary behaviour’ by employees, meaning they ‘go the extra mile’. This relationship is shown in Resource C [Link]. Front line managers have a crucial role to play in enacting these HR policies and managers need to behave in ways that encourage positive attitudes in their staff. Measurement would aim to demonstrate the links between leadership, management, engagement, people performance and business results.

Benefits of Measurement

Developing suitable HR measures and an effective process for measuring and managing them is essential if organisations are to understand and optimise the contribution of their people. Effective measurement will also enable you to understand which HR activities are most or least effective in delivering results for your organisation.

Given the relationships between HR policies, people management practices, employee engagement, capability, behaviour and business results, an effective HR management and measurement process should seek to capture all these different elements. Measures should track the links and causal relationships between these elements to enable them to be managed effectively.

[1]Understanding the People and Performance Link: Unlocking the Black Box, CIPD, 2003

Guide to Measuring HR Effectiveness - Resource B: References and Links >