March 01, 2018

Using Fact-based HR to Create Value

There are many viewpoints on the mission and function of human resources (HR) and people management. Some think that the function is meant to simply manage the workforce. Many believe its core driver is to reduce personnel cost, while others feel that HR is instrumental to keeping workers happy and productive. All of this is true, but for many HR executives the purpose of their function is to create value for the organization and for its workforce. This value is created as a direct result of maximizing human potential and minimizing cost simultaneously. 

For an organization, the creation of value could be business growth, return on investment (ROI), or customer satisfaction. For workers, value is created by income, development and a sense of purpose.

Value Creation in HR

Historically, HR has placed a lot of emphasis on efficiency and cost reduction. For example, there has been a huge focus in the past decade on implementing lean processes and cutting personnel costs. Yet, there is a limit on what can be done to maximize efficiency and running an organization at the lowest possible costs without loss of quality of products or services. To really create value, then, HR needs to also look at the other part of the equation – effectively utilizing human potential.

Using Fact-Based HR Instruments

By utilizing fact-based HR, organizations can implement a strategy that clearly demonstrates how the efforts of its people will impact the organization’s key strategic objectives. It also gives focus on what HR should be analyzing and measuring. There is a plethora of fact-based HR instruments, many of which have interdependencies and overlap. For example, with HR metrics and KPI dashboards, the progress of efforts can be monitored. And to know the impact of the efforts, organizations can look at people analytics research. And if this research results in actionable findings, its possible to calculate the ROI by building a business case. Here are some of the more common fact-based HR instruments:

  • HR Metrics & KPI: What is our progress?
  • HR Benchmarking: How do we compare?
  • People Analytics: What is the impact?
  • HR Business Case: What will be the ROI?
  • Strategic Workforce: Who do we have and need?

When measuring efforts are aimed at what matters most for value creation, then any form of fact-based HR will lead to valuable insights and HR impact. But what do we want to measure? And what matters most?

What Matters Most?

A recent research study by Analytics in HR asked over 200 HR leaders across the world to select and rank their HR drivers on potential impact. The 3 HR drivers perceived to have the highest impact were Leadership, Performance Management, and Engagement. And the 3 HR drivers measured the most were Turnover, Engagement, and Career & Mobility. The drivers perceived as having the highest business impact were measured the least!

This research tells us that HR is not measuring what matters the most to our organization and our workforces. Of course, the top 3 HR drivers with highest business impact are difficult to measure in terms of effectiveness.