In order to develop a valuable HR metrics/performance measurement system it is imperative that organizations focus on their competitive strategy and operational goals, and should clearly define what employee competencies and behaviors are required to attain the above objective. (Becker, Huselid, & Ulrich, 2001, p. 52)
Metrics are valuable if the actions and decisions which develop the metrics also develop the firm’s strategic objective. For example, if we take a sales team and a product development team, the metrics measured would be slightly different. A sales team directly affects revenue by its selling effort. Revenue, or sales time margins, might be a good metric for the sales force. The product development team also affects revenue, but less directly and less immediately. Near-term revenue is a reasonable metric, but the firm may also want to use another metric, such as customer satisfaction, to represent long-term revenue. The firm might also include metrics such as cycle time, development cost, and synergies with other products in the line. The team can affect these directly and, if they are chosen carefully, the actions the team takes to affect these metrics are the same actions that produce long-term profit for the firm. (John R. Hauser and Gerald M. Katz, 1998, p. 7)
Another way to add value to metrics that organizations measure is to align it with corporate and business strategy. When a company decides to change its goals, the metrics should also change accordingly. For instance: A bank decided to shift the focus of its retail business from service to sales. Though the key performance drivers of the firm was now, increased cross selling to customers, teller product knowledge and sales skills, it still used service related metrics and continued practices like; hiring based on service competencies, low pay and benefits for teller, service based training programs etc. Due to this disconnect between firm’s new goals and outdated performance measurement metrics, the bank failed to achieve its sales and profitability targets. (Becker, Huselid, & Ulrich, 2001, p. 33)
HR Metrics generally measure efficiency (time and cost) and the effectiveness of certain activities. The traditional metrics such as head count, turnover, and time to fill is being expanded by the use of KPIs that align with corporate strategies. This is building the credibility of HR and increasing its value by fostering partnership with senior management. By selecting meaningful and effective KPI’s HR is able to link its activities with the firm’s performance and communicate it in financial/business terms (Mello, 2011, p. 30).
Measuring valuable metrics leads to the measurement of those HR decisions and outcomes that get the highest rate of return. For example: In the case of Sears, the HR managers used a seventy item survey, which they then distilled down to ten items as their measure of “compelling place to work.” These ten items were later consolidated along two dimensions – employee attitude towards the job and towards the company. This kind of measurement gave the company an explicit way to assess how well it was realizing its vision of being a “compelling place to work.” (Becker, Huselid, & Ulrich, 2001, p. 116)
Therefore, the metrics that organizations measure does have value only if its results provide meaningful input into subsequent decisions and contribute to more effective performance evaluation.