Quality standards often get a deservedly bad press. Tom Peters ridiculed ISO9000 by suggesting that a lifejacket made of concrete would satisfy the standard. He was perfectly correct of course because the standard is more concerned with process than outcome or the functionality of the end product. It is a pity no one on SHRM’s Taskforce for HR Standards had learned this lesson before it submitted its first attempt, Cost Per Hire (CPH), to the American National Standards Institute (ANSI).
We do not have to look very far for evidence of setting concrete. Page 3 of this standard – the Executive Summary – tells us that:
“The CPH metric has been in use for decades, providing HR professionals and
managers with information to assist them in establishing budgets and also serving as a benchmark for recruiting effectiveness and the efficiency of staffing processes.”
CPH was just one of many ‘HR metrics’ promoted by the work of SHRM’s favourite, number-crunching, benchmarker Jac Fitz-Enz but neither he nor SHRM ever showed any understanding of the crucial distinctions that must be made between efficiency, effectiveness and value (that’s $’s to you and me).
Cost-per-hire is just the average cost of recruiting someone. It does not tell you whether that person is of sufficient quality to do their job effectively. Nor does it tell you anything about their subsequent performance. So to claim that it can serve “as a benchmark for recruiting effectiveness” is actually a lie and to suggest it gauges “efficiency” is also nonsense until the outcome, the performance of the new hires, is established. You could be hiring idiots at a very low cost and it would still satisfy this standard (sic). In short, this is not a standard at all.
In fairness, the standard acknowledges some of the “Known Limitations” of CPH (6.4) but then blithely carries on without resolving any of the complex issues inherent in the pursuit of value through strategic HR management. This simplistic approach also ignores, or is unaware of, the paradigm shift required to move HR onto an evidence-based management footing.
As a lifelong campaigner for improving HR professionalism I should be welcoming the introduction of standards. I was even a volunteer on SHRM’s Taskforce for six months before I realised that no one was listening to common sense or learning from their own mistakes. History tells us that the use of such HR metrics never improved HR’s credibility or reputation in the US (or anywhere else for that matter).
What worries me more is that SHRM now wants to use its ANSI standards (there are more in the pipeline) as the basis for globally recognised, ISO standards in HR. If it manages to do so there will be many HR departments, not just in America, who will be drowning under the immense weight of this misguided bureaucracy (all 50 pages of it). As an adviser to the British Standards Institute (BSI) on the same ISO-HR standards effort I will certainly be doing my best to ensure that the UK does not get dragged down with them.
Update – 9th June 2012 – the Americans have now submitted the ANSI CPH standard to ISO for approval as an international standard. It will be put to the vote in September 2012. See also HR Standards
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Paul,
The question could be asked whether or not the SHRM document is actually a standard. Unlike other areas of HR activity this is a calculated HR ratio, normally situated within the activity area of recruitment (or to be precise attraction and selection). It is a [standard] definition. In that respect it could make a contribution in a ‘HR Recruitment Standard’ [that's just one type of standard] in the attachment labelled ‘definitions’. That it’s 36 odd pages in final form is interesting but that includes examples. Can it be related to value?
SHRM – Standard: Definition of Cost per hire (CPH): a measure of the effort exerted, defined in financial terms, to staff an open position in an organisation …. [but excluding organisational efforts that occur post-hire].
The Cost Per Hire (CPH) standard can be related to an outcome based management framework:
‘Objective’ – CPH can be used to set an efficiency objective, or a desired efficiency outcome. CPH does not indicate the effectiveness of hiring. CPH can be used to compare organisational costs with external providers (economics: or alternative cost).
‘Input’ – CPH acts as an aid to the formulation of budgets; CPH captures internal and external costs; cost in time, cost in dollars, (see SHRM CPH for inclusions). CPH can be used to ensure that comparisons are made on a like-for-like basis.
‘Process’ – Hiring: CPH is affected by the choice of hiring strategy: recruitment methodology, advertising, branding, selection: applicant interest, applicant testing, time to find potential shortlist pool, time to recruit. Segmentation will be required for it to be a meaningful measure (eg Executive CPH). Can be used to ensure that comparisons are made on a like-for-like basis.
‘Output’ – CPH can be related to a specific objective. Can offer an outsourced or alternative cost per hire.
‘Outcome’ – CPH – Could provide evidence of efficiency; but a ‘hire’ may be efficient and not effective. A ‘hire’ may also be economic but not effective.
‘Risk’ – CPH data enable controls on expenditure (eg no more than av CPH plus 15% without approval). Cost per hire may be low but productivity or retention issues may be more important for the HR-business strategy.
Tentative assessment: the SHRM document has relevance but it’s more a ‘standard definition’ that can be used within an ‘activity standard’.
Chris Andrews – Gold Coast – Australia
HR often becomes engrossed in tactical activity and processes, rather than clearly linking to the organisation’s strategic objectives. HR can provide a valuable service but may not be providing an effective service (to achieve ‘value-for money’, an activity should be effective, efficient and economic), as HR often directs its efforts and resources to the ‘here and now’, current needs, and transactional rather than strategic effectiveness. One recent interviewee described this mode of operating as ‘the cycle of fury’; another as ‘being caught in the activity trap’.
But, HR KPIs / measures are often activity-based, so that the measure and/or target, is often the completion of an activity rather than the achievement of an holistic outcome. Indicators may have been chosen because they can be (easily) measured, not because they are the right things to measure. A weakness in this approach is that the measures might not provide an indication of the impact of the activity, and often focus on how the work was undertaken. In other words, they may not answer the questions: Did the activity achieve the planned outcome? How well?
Consequently, in terms of any performance review, there can be an assessment of the extent to which resources have been managed economically or efficiently, but without an insight into effectiveness.
Over recent years, outcome based management (OBM) and reporting have been promoted in the Australian public sector, in particular.
What is OBM? It focuses on why things are done not just what is done, and facilitates managing for results, and provides outcomes and Key Performance Indicators (KPIs) against which performance can be measured.
Australian audits, however, have found deviance from best-practice OBM. For example, the Victorian Auditor-General’s report of June 2008 examined performance reporting by councils. “It concludes that much of the performance data reported is not useful……and that important data on the cost-efficiency and quality of council services, and on the achievement of outcomes is not being reported”. This was followed by a 2010 report which concluded that “the focus of performance reporting in Victoria has largely remained on output performance measures” so that only a few departments were able to demonstrate the extent to which objectives had been met.
In these circumstances, departments were not able to demonstrate effective use of allocated funds to Parliament and the community.
So, if the focus on HR and/or public sector KPIs is on ‘what is done’ rather than ‘did we achieve our objectives’, stakeholders are less likely to see demonstrated value-for-money effectiveness. The draft CPH Standard appears to suffer this syndrome.
The Australian National Audit Office (2004) proposes that a good performance reporting framework should include specified desired outcomes and measurable performance indicators for those outcomes. This proposition could equally apply to HR departments.
Richard Boddington – Brisbane
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