How important is it for the organization to determine the effectiveness of the Human Resource Function? Why? The role of human resource management has evolved from merely handling administrative matters to being heavily involved in the company’s strategic planning. This is because more and more companies have recognised the key role that a skilled and competent workforce plays in creating, sustaining, and even increasing value for the organisation.
Human resource management is embedded in every phase of an employee’s life cycle in the company, starting with recruitment. It is important for a company to hire new employees who will be able to address its business needs, are qualified, competent and motivated, and most importantly, whose values and principles are aligned with those of the company. It is also the role of the Human Resource (HR) department to market the company as the company of choice, especially for fresh university graduates, in order to get the best talents available.
Another critical area of human resource management is talent retention. Sustaining the employee’s interest and promoting loyalty among the workforce can be achieved through a number of ways such as ensuring a healthy and safe working environment, providing competitive compensation packages and benefits, and rewarding outstanding employees who have significantly contributed to the attainment of the company’s goals. The idea is to ensure that the employees are generally happy with their work so that this will reflect on their performance.
In addition, the HR department ensures that there are enough programs available to the employees for their training, development and upskilling needs. During and even after retirement, human resource management should also be present to ascertain that employees are satisfied and protected as they leave the organisation. Apart from looking after employees’ welfare throughout their stay in the company, the HR department handles a number of important functions such as internal communications, performance evaluation of employees, and managing an employee’s career development path.
More importantly, though, human resource management ensures that the company abides by all national, and sometimes even international, labor laws and regulations. Measuring HR Effectiveness Gone are the days when companies simply believed that HR practices are working; they now want hard facts and quantifiable results to determine if HR is adding value to the organisation.
However, measuring the effectiveness of a company’s human resources management should not be limited to its “people functions”; instead, it should also measure how HR best practices contribute to the attainment of the company’s business goals. In addition, the evaluation of HR’s effectiveness should strike a balance between cost (employee-related expenditures, both direct and indirect) and benefits or impacts on three levels – internal (employees themselves), external (customers, clients and other stakeholders) and business (financial outcomes).
Metrics for determining the value of HR internally include manpower productivity which for a water company, for instance, can be expressed as staff per 1,000 connections; periodic performance ratings based on agreed targets and deliverables; turnover rate by age, rank and gender; compensation level against industry standards; training hours per person per year; number of employees who received awards and recognitions for the year; number of labor cases filed by union members; as well as health and safety indicators such as fatalities rate, injury rate, occupational diseases rate, lost day rate and absentee rate.
A company can likewise establish the effectiveness of its HR practices by getting feedback from its stakeholders. This is particularly useful for organisations in the service industry. Customer / client satisfaction surveys can help determine how well (or poorly) the existing talent pool is equipped to carry out the company’s services, and how effective they are in addressing customer / client concerns. Results of such surveys will allow the company to evaluate the skills gaps, and consequently, the training and development requirements of its employees.
Finally, financial information like revenue, market share, net income, and share price can broadly determine how strong the workforce is from top management down to skilled workers and rank-and-file staff. This is because all companies rely on their people to develop, implement and monitor business functions that should lead to the growth and profitability of the organisation. Importance of Determining HR Effectiveness As we have seen, HR serves as the guardians of employees who, in turn, are the cornerstone of any successful and stable organisation.
This means that HR plays a critical role in ensuring the existence of a competent talent pool at any given time that can drive the company to attain its business goals. It is, therefore, important for a company to determine the effectiveness and efficiency of its HR functions. By measuring the level and magnitude of impact of its human resources management, a company may be able to establish whether it is putting in the right amount of investment through the right employee programs and for the right talents.
Obviously, a company would not want to overspend on HR programs or processes that do not yield significant impacts or do not add value to the organisation. In addition, when good and comprehensive HR metrics or key performance indicators are in place, a company will be able to adopt a more targeted approach to people development. For instance, if after the annual performance appraisal the company finds out that most of its employees are poor in customer service, then it can develop a training module on customer interaction, negotiation and communication.
Similarly, if employee assessment results show that some senior managers are not effective in their posts, then the company can make the necessary adjustments by moving these employees to another unit where their expertise will be maximised, and finding the most qualified talent to take their place. Evaluating the level of success of its HR department will also send a positive signal to employees especially when the company asks for their opinion. It will make them feel that the company is really committed to safeguard their welfare while working for the company and to hone their skills to become well-rounded professionals.
More importantly, measuring the effectiveness of its HR programs and processes will allow the company to understand the kind of employees it has – whether highly skilled, average performers or mostly staff workers – and this will serve as an input to its strategic planning. Say, for example, the company wants to acquire a rival company or buy out a firm that went bankrupt, it will be able to clearly see if it has the needed talents to do so, or if they have available talents who can be seconded to the new subsidiary.