Human Resource Management is a key component in the maintenance and utilization of an effective workforce. HRM includes myriad activities ranging from recruitment to training and even the development of compensation systems. HRM has evolved significantly since the early 1900s. The need to deal with labor unions and the human relations movement has increased the need for competent human resource professionals (Dessler, 2002).
3. Reasons for Measuring
Human resource managers are required to balance the requirements of management against those of the organization to ensure staffing requirements are consistent with the overall organizational objectives. There is always a focus on results and measurement, the benefits from such analyses are numerous. Some of the key reasons for measuring HRM are (Phillips, 1996)
1. To identify HRM’s contribution to organizational effectiveness
2. To determine whether HRM is accomplishing its objectives
3. To identify the strengths and weaknesses of HRM processes
4. To calculate the return on investment in an HRM program
5. To determine if an HRM program or policy justifies investment of resources
6. To establish a database that can assist management in making decisions about HRM
4. Indicators of HRM
The main impacts of HRM to the organisation can be gauged from the following key indicators (Frost et al, 2001)
Figure 1: 4 Quadrants of HRM Indicators
5. Measuring HRM
The influences and impacts mentioned previously provide an indication of the relative success of HRM within the organisation. As is evident, there are a number of indicators and their measurements and applications are quite varied. Some of the more common ways of measuring HRM are
There are myriad proforma surveys that are available to HRM Managers to review and measure the feedback from employees and customers. OPM’s (Office of Personnel Management) Organizational Assessment Survey was created to assist organisations in the assessment and improvement of their performance and has since become an industry standard. The survey contributes to organizational performance improvement by:
1. “assessing organizational strengths and weaknesses;
2. providing a basis for effective action-planning to determine training and organizational change strategies; and
3. establishing measures for benchmarking and evaluating change in organizational performance over time.”
Cost- Benefit and ROI Analyses
Return on Investment (ROI) is a cost-benefit analysis that offers HR managers a way to explain, in financial terms, how HR contributes to the bottom line. This helps in boosting HR’s credibility in management circles. To date, a major obstacle HR professionals have had in becoming full partners with senior agency management teams is proving its value to business discussions. Historically HR has not had the statistical data or business cost benefit analysis to prove its influence and impact on the organisation. However, using ROI to show that human resources management is an investment, rather than an expense, helps move HR further in the direction of becoming a strategic partner.
Activity Based Costing (ABC)
ABC is a process of estimating the costs associated with each step of a process. It has been used to identify the costs of HRM programs and processes. “It is an accounting system that assigns costs to products based on the resources they consume. The costs of all activities are traced to the product for which they are performed. Overhead costs are also traced to a particular product rather than spread arbitrarily across all product lines” (Albrecht, 2000). The breakdown of costs increases the visibility and transparency and proves how effectively resources are being used, which in turn can help improve strategic decision-making. Several organisations have successfully used ABC to reveal the true cost of HRM, either to inform the overall budgeting process or to help benchmark HRM costs against other key industry players.
“Benchmarking is a systematic process of measuring an organization’s products, services, and practices against those of a like organization that is a recognized leader in the studied area” (Phillips et al, 2001). Organisations across industries and geographical boundaries are using this practice to discover ways of improving service and increasing business efficiency and profitability.
Balanced Scorecard/Balanced Measures
The Balanced Scorecard is a strategic measurement approach that provides a method of aligning business activities with the organization’s strategic plan and monitoring performance of strategic goals over time. A set of balanced measures is used, rather than focusing on the single, traditional bottom line. The original scorecard developed by Kaplan and Norton (2004) was divided into five perspectives (or measurement areas):
1. Financial: Demonstrates how our initiatives, activities, and actions contribute to the organization’s bottom line, or how they provide value for the money spent. Cost and revenue are the main measures for this perspective. Labour costs expressed as a fraction of revenues is a common financial measure.
2. Customer: Tells us what we must do to meet the needs of our internal and external customers. Time, quality, performance and cost are the main areas in which customers are interested. Good government is accountable to the customer.
3. Internal Business: Shows where we must excel internally to succeed in accomplishing our mission. Cycle time, quality, employee skills, and productivity are examples of internal measures.
4. Learning and growth: Illustrates how the organization can continue to improve and create value. This includes how we sustain the growth of our people. The ability to innovate, improve, and learn are key characteristics of this perspective.
5. Human Resources Employee Empowerment: Tracks how leadership and working environment enhance HR employee’s job performance.
The Malcolm Baldrige Criteria for Performance Excellence
The Malcolm Baldrige Criteria are a framework based on a set of core values and concepts that any organization can use to improve overall performance. “They integrate key business requirements into a results-oriented framework and reflect validated, leading-edge management practices against which an organization can measure itself” (Becker et al, 2001). Organizations are assessed, using a scored point system, on approach, deployment, and results. The Criteria are recognized nationally and internationally as a model for performance excellence and therefore represents “a common language for communication among organizations for sharing best practices” (Kaplan & Norton, 2004).
The history of HRM has been characterized by a continues attempt in justifying its impact and influence within an organization. The rise of unions along with the expansion of companies into foreign markets has made efficient HRM critical. HRM has moved from the position of justifying its position in an organization to adding to the organizations profits by “managing its most important asset – its people” (Dessler, 2002).
Kaplan, R. S. & Norton, D. P. (2004) Strategy Maps: Converting Intangible Assets into Tangible Outcomes, Harvard Business School Press.
Becker, E. B., Huselid, M. A. & Ulrich, D. (2001), The HR Scorecard: Linking People, Strategy and Performance, 1st Edition, Harvard Business School Press.
Phillips, J. J., Stone, R. D. & Phillips, P. P. (2001) The Human Resources Scorecard, Butterworth-Heinemann.
Albrecht, M. H. (2000) International HRM: Managing Diversity in the Workplace, Blackwell Publishers.
Fitz-Enz, J, (2000) The ROI of Human Capital: Measuring the Economic Value of Employee Performance, American Management Association.
Frost, P. J., Nord, W. R. & Krefting, L. A, (2001) HRM Reality, 2nd Edition, Pearson Education.
Phillips, J. P. (1996), Accountability in Human Resource Management – Improving Human Performance Series, Gulf Professional Publishing.
Dessler, G. (2002) Human Resource Management, 9th ed., Prentice Hall.