In a recent survey of 65 senior human resource (HR) executives in California, measurement of HR effectiveness and impact was ranked as the number one topic that HR executives are most interested in exploring.
As business competition escalates and corporate resources shrink, all staff functions – such as management information systems, finance, human resources, and research and development – are being pressured to demonstrate their value added and to refocus their resources for higher business leverage.
Possible outcomes of refocusing staff functions are outsourcing, automation, elimination, and/or downsizing in order to conserve scarce organizational resources. The HR function is no exception to this challenge.
What is exceptional about the HR function, however, is that it is less prepared than many other functions (such as finance or management information systems) to quantify its impact on business performance.
Conceptual linkages between HR and business performance are not well developed, and existing HR measures are not properly formulated to capture the impact of HR on business performance. As such, efforts to refocus HR may not be well positioned to optimize business performance.
Several consistent themes emerge from studies of the relationship between human resources and business performance.
First, HR practices definitely make a difference in business results, especially the use of HR practices that build employee commitment.
The synergy and congruence among HR practices have an important impact on business performance.
To develop meaningful human resource measures, a framework is needed to outline how human resources can impact business performance.
While the balanced scorecard framework defines what a business should focus on, the strategic human resource framework offers specific tools and paths to identify how a firm can leverage its human resource practices in order to succeed.
While the human resource strategy of a mass production system is used to create a highly specialized and deskilled workforce that supports a large-scale production process, the HR strategy of a lean production system aims to create a skilled, motivated, and flexible workforce that can continuously solve problems.
If human resource practices can impact business success through building up organizational capabilities, improving employee satisfaction, and shaping customer satisfaction, new human resource measures should be developed to drive business performance.
As argued by Kaplan and Norton, 1992, Page 71: “ What you measure is what you get.”
Unless human resource measures are realigned to drive the activities and behaviours of human resource professionals and line managers, HR practices can hardly be expected to demonstrate any impact on the bottom line.
Dramatic changes in human resource measures are urgently required to refocus the priorities and resources of the HR function. Instead of being HR-driven, the next generation of HR measures needs to be business-driven.
Instead of being activity-oriented (what and how much we do), new HR measures should be impact-oriented (how much we improve business results). Instead of looking backward (what has happened), innovative HR measures should be forward-looking, allowing managers to assess and diagnose the processes and people capabilities that can predict the future success of corporations.
Finally, instead of focusing on individual HR practices (the performance of staffing practices, training and development practices), future HR measurement should focus on the entire HR system, taking into account the synergy existing among all HR practices.
