Tag Archives: HR metrics

American ‘HR metric mania’ is a concrete lifejacket

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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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Judge HR by the ‘metrics’ they choose

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One of the most common HR ‘metrics’ cited by HR people is the number of HR people per 100 FTE’s (full time equivalents – employees) and this is used by HR itself and auditors (see “Primary Indicator 2″ on page 13) as a benchmark to suggest how well they are doing.  The perspective of an EB-HR manager would suggest the exact opposite.

The PwC/Saratoga/audit ‘school of thought’ – that’s being generous, it’s more a mentality – encourages HR departments to choose these ‘metrics’, presumably, in the belief that either: -

a. There is an ‘ideal’ ratio to aim for (based on what?) or
b. HR is a necessary evil that should aim to eliminate its cost (otherwise known as HR’s suicide note)

The thinking EB-HR manager does not adopt either of these views.  To them it is a meaningless ratio that tells them everything they need to know about HR teams whose primary focus is activity rather than value.  Such ratios can only have meaning when allied to indicators of output.  So the EB-HR Manager asks each member of the team what they are contributing?    Let us compare a couple of possible answers.

1. ‘I deal with 100 managers’ queries a day’

EB-HR manager’s response? - ‘Let’s seek to remove all of the causes of those queries’.

This does not endear them to the HR team, or their line managers, who have become ‘HR support junkies’.  However,  this will not deter the EB-HR manager from adopting a two-pronged approach in removing transactional inefficiencies whilst resolving the underlying, strategic causes.  For example, if one of the ‘queries’ is to do with union issues it is because the HR Strategy has failed in some way.

2. ‘I’ve been working on re-designing team roles to increase efficiency, improve customer service and save us about $100,000 a year’

EB-HR manager’s response? - ‘Great. Can I see some of the detail of how things are going? What other plans have you got and do you need more resources?’

The choices are that stark and that simple; regardless of how difficult it might be to gauge value added.  Now take another staple HR activity – hiring – and ask yourself three questions: -

a. Which ‘metrics’ should be at the very top of the priority list?
b. Which are the easiest to gauge?
c. Which would your CEO most like to know?

  • The average time it takes you to hire someone?
  • The average cost of hiring someone?
  • The industry benchmark?
  • The number of applicants per vacancy?
  • The performance of the new hires?
  • Job offers turned down?
  • How often you get the hiring decision ‘wrong’?
  • How much value they add?

The choice is yours.

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R.I.P UK Civil Service

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I am sorry to have to announce the demise of the UK’s Civil Service. Even though I predicted this* some time ago I never realised it would be such a swift and ignominious end.

When I started this blog book in August 2010 it seemed appropriate, on a site about HR, to make my first ‘launch’ piece about the CIPD and the sheer lack of competence and professionalism amongst a Board that is supposed to be the UK’s leading, professional, HR institution. One Board member is Gill Rider, recently Head of Civil Service HR, who has ‘retired’ herself from her Cabinet Office role (April 2011). After 5 years in post her own assessment of her performance in applying the CIPD’s “Next Generation HR” project was that it –

“… transforms the existing departmental model of HR delivery. Instead of each department having its own full HR function there will be shared centres of expertise that will lead on HR for the whole civil service. We are on track to introduce the programme in April (2011) and ultimately it will deliver anticipated savings of £300 million and a best in class (sic) staffing ratio of 1:100.”

You don’t need to be evidence-based to see this for what it is.  In fact you don’t need much intelligence at all.  There is somebody though who doesn’t appear to possess even that minimum level.  Someone who cannot admit that hype will never cover up a performance score of zilch.  That person is her ex-boss, the most senior Civil Servant in the UK, Gus O’Donnell, Cabinet Secretary and Head of the Home Civil Service, whose performance appraisal of Rider’s accomplishments (sic) was -

“Not only has Gill led some amazing work to transform the HR profession, she has seen through a transformation of the senior leadership of the civil service. The development of the Top 200, capability reviews and talent management programmes, such as SCS (senior civil service) Basecamp, are just three examples of the impact she has made on the Civil Service.”

This is one of those employee references you give when you have nothing good to say about someone; you just confirm they were there.  When our Top 200, intellectually superior, civil servants allow themselves to be ‘developed’ by people like Rider, and have such mindless behaviour reinforced by O’Donnell, who regards attending “talent management programmes” as “impact”, we know that although the Civil Service might still be breathing, just, by any definition it is already brain dead.  I would just add that Rider’s remarkable achievement, surviving for 5 years without doing anything, has now also been recognised by her chums on the Board of the CIPD who have appointed her as their President.

One more thought also occurs to me – I wonder what the words HR, evidence, professionalism and performance mean to the Board of Rider’s previous employer, Accenture; whose erstwhile sister company, Arthur Andersen, inspired the banner for this site, after its own demise in the wake of the Enron scandal?

*From HR Strategy (2nd Edition, 2010, p 187)

“Good and bad politics

One thing that could get in the way of all this common sense is office politics.  Although we need to make a very clear distinction here between what could be called ‘normal political discussions’ and the sort of corrosive ‘Yes, Minister’ politics that have nothing to do with organisational performance (and are killing the civil service).”

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Evidence-Based HR managers know better than to rely on correlations

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Finding the causes of complex problems. is the single, most skilful part of the evidence-based manager’s job.  Asking ‘Why?’ is also a prime motivator of human behaviour.  Many of man’s greatest endeavours are driven by this most primal need – why are we here, what has caused me to feel this way?  If we fail to identify the right causes, using evidence-based analysis, we fail to find the right solutions.   When organisational  demands for activity – ‘do anything but do something!’ – take precedence over intelligent thought and proper analysis then we are bound to see short cuts being taken, however erroneous.

Academia is not put under the same immediate, operational duress so we expect academics to go to the trouble of providing better evidence with more scientifically rigorous methods.  The LSE (London School of Economics and Political Science) even takes its Latin motto ‘Rerum cognoscere causas’ – ‘to understand the causes of things’ – from Virgil’s dictum “happy is he who can discover the causes of things”.

Indeed, great happiness will stem from knowing the causes of what ails us and one LSE academic in particular has followed this line of enquiry – Professor Richard Layard – who is well known for his work on happiness and wellbeing.  These are both matters of great interest to those who have devoted their entire careers to the search for the causes of employee happiness and fulfilment at work. So has Professor Layard followed the LSE’s creed in this endeavour?

Anyone dealing with people issues at work will be reminded, every day, that HR management is not a ‘science’ in any meaningful sense.  It cannot be tested in laboratory conditions and neither does it respond well to conventional, statistical analysis. I am referring of course to correlations and regression analysis.  This is an arcane, statistical technique used by social scientists to pretend that they have identified the causes of complex human problems when, in fact, they have just resorted to stacking one correlation on top of another – which is not the same thing at all.  If this is all a bit too academic for you let me make my point much simpler.

Every HR department I know wants to believe that employee engagement causes organisational performance.  This notion appears obvious and very valid until you consider that the buyer of your office furniture could equally make the same claim about their role.  There is probably as much of a correlation between office furniture costs and profit as there is between engagement and profit but no one in their right mind (apart from the procurement department) would suggest that this denotes a significant, causal relationship with performance.  Evidence-based managers do not rely on correlations that can so easily make them look stupid.

This logic does not stop highly respected academics passing off correlations as causation though.  Take Professor Layard’s own paper  – ‘Good Jobs and Bad Jobs’ where he tells us in “Annex A: Evidence on Happiness” that

“Happiness research has confirmed that happiness is a single dimension of all experience, measurable by psychometric or neurological measures (both highly correlated).”

They may well be highly correlated but that will never reveal what causes what.  Or has the LSE dropped its motto now and replaced it with a much lower standard of evidence – “to find correlations between things”.  Would they be just as happy to pass off a bottle of cheap Cava as Dom Perignon at receptions for their generous alumni?  Probably, if they thought  no one would notice.

Surreptitiously and knowingly substituting correlation for causation is a serious crime and extremely dangerous.  There is a correlation between skin colour and prison population in the US and no doubt this is irresponsibly seized upon, by those with their own agendas, to infer that the colour of someone’s skin can actually cause crime.

This is the prime reason why evidence-based HR is now so high on the organisational agenda – because the development of HR management thinking over the last 30 years has been predicated on spurious correlations (e.g. happy employees are productive employees, diversity targets improve diversity) rather than causation.

There can be no better example of this than the “Best companies to work for” (*but see Update below) schemes. In the UK the image shown above was printed in The Sunday Times supplement announcing the ‘winners’ of this award in 2005.  The graphs purport to show a causal connection between being a ‘best company’ and superior performance, when compared to the FTSE 100.  Except that the small print had to admit that -

“in the last year … the FTSE 100 moved ahead with a 14.3% return against an 8.3% return for Best Companies”.

So not only had they failed to support their causal claim with the evidence on show, the correlation they used had been broken and they continued to refer to those with the worst performance as the ‘Best companies’.  One could infer from the ‘Best Companies’ own data that perhaps it should be called the ‘Most Stupid Companies’ awards?

This is why lies and ‘damn lies’ often masquerade as meaningful statistics. Coming up with a solution first and then concocting the ‘evidence’ (sic) later to justify it will never be able to compete with the professionalism of the evidence-based.  There will only ever be one winner in this competition.

For personal development linked to this topic visit the Consummate Professional Series Module 2 and Module 4

*Update 17th April 2012

This similar chart was taken from the i4cp site. Even if these graphs are true it is highly unlikely that they have anything to do with being (or not being) an i4cp member. Trying to mislead innumerate HR people is a sure sign of a non-evidence-based approach – interestingly Professor John Boudreau is on their Board of Directors.

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Managers with ‘ODD’ attitudes do not get EBM

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One of the many aspects of human behaviour that I have never been able to fathom is the ‘polar shift’ – moving from one extreme position to another without any rational explanation.  Anyone who has children will have witnessed it.  You are just about to go out and you say to your child ‘put your other shoes on’ and it ends up with them moodily selecting the most inappropriate shoes or simply refusing to go out.  There is no halfway house, no moderation. The worst cases are now classed as ‘oppositional defiance disorder’ (ODD).

When such behaviour continues into adolescence we put it down to teenage petulance – ‘be back by midnight’ turns into either sulking in their room or arriving back at four in the morning.  Being told to do something makes us want to demonstrate that we are not a slave to authority and what better way to demonstrate our independence than to do exactly the opposite of what the authority wants?  But I think there’s more to it than that and, when it persists into adulthood, the behaviour becomes even more extreme and, frankly, bizarre.

Tell someone in HR or learning that they have no evidence to support their favourite activity and they immediately move from a position of zero evidence to demanding the highest, most sophisticated level of evidence possible. Trainers, who do no evaluation at all, suddenly want to use control groups, randomised control trials or double blind experiments when a simple chat with a trainee would suffice (‘have you used what we taught you – were there any problems?’)

HR departments who never want to measure anything suddenly start producing masses of ‘HR metrics’ and because this mountain of data fails to answer the most obvious question (what value do you add?) they go and change the name to ‘human capital analytics’ – the child’s equivalent of choosing their flip flops to walk in the snow.

Of course the other polar response to the simple question – ‘how do you know your methods work?’ – is the asinine challenge – ‘well you prove to me that they don’t’.  It is a pity but these ‘managers’ are a little too old now to be sent to their room.  No evidence-based manager is going to waste their organisation’s precious time and money looking to prove anything. They know only too well that you cannot prove a negative (e.g. you cannot prove a god does not exist).  All the EB professional hopes for is a positive and constructive response, not the recalcitrant attitude of the teenager who simply refuses to do what is in their own, best interests.

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HR playing the Fool

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I was sorely tempted to write an April Fool’s piece today but instead I opted for a history lesson on ‘The HR Department’.  In case you were still wondering, this is not a site for HR people – or at least not the majority of those in conventional HR roles.  As far back as I can remember there were soothsayers predicting that HR was at a ‘crossroads’ and had to decide which path to take.  In 1991 I decided to take a very different path to the one that the other 99% of the ‘HR profession’ thought was a safer bet.  So let’s go back 20 years and remind ourselves what the current thinking was then.

1991

The precursor of the UK’s CIPD was the IPM (Institute of Personnel Management).  Its president was Barry Curnow who wrote a piece for Human Resources magazine (Summer issue) entitled -

“Measuring the intangible – performance criteria in jobs without a bottom line”.

Barry, obviously having a penchant for self-immolation, did not present the most positive face that one might expect from a professional body’s titular head.  But even in 1991 Barry was totally out of touch with the real world, which was increasingly demanding a ‘total quality’ approach to management that had to exclude all muda (a Japanese term used in the Toyota Production System for an activity that is wasteful, unproductive and adds no value) and personnel people were definitely starting to be seen, at best, as a necessary evil and, at worst, as the PC (political correctness) police.

1993

Two years later I was asked to speak at the IPM’s annual conference on the radically new theme of ‘The added value of Personnel’ (HR was still not on the scene).  Someone had finally decided that the Personnel department should at least acknowledge it had a bottom line.  Although it had not yet registered with the 500+ members in the audience: the majority of whom had bemused looks on their faces, as though I were speaking a foreign language.

The keynote conference speaker that year was Dr. Richard Pascale (“The art of Japanese Management”)  who told his audience -

“In the US people in personnel take on a psychological contract to be a victim.” (reported in Personnel Today, 9 November 1993).

So the US experience was no different apparently.

1995

By 1995 the response from beleaguered personnel departments, to all of this damning criticism, was to re-invent themselves as ‘HR’ – because it sounded more like the sort of department that might actually have a ‘bottom line’.  Yet the guy who had taken over Barry Curnow’s role, the infamous Geoff Armstrong, was having none of it.  In a book review in Personnel Today (23 February 1995) he predicted –

“In my view, it is wrong to tie strategic people issues to the HRM bandwagon.  They were around before HRM was invented, and will still be around long after its faddish label has faded.”

Whilst over-staying his welcome at the CIPD, and building a sycophantic regime that even Colonel Gaddafi would envy, Armstrong arguably did more damage to the cause of business-focused HR professionalism than any other person.  Certainly it set back the CIPD’s development by at least 10 years, IMHO.

1996

Meanwhile observers such as Thomas Stewart in Fortune magazine (15 January 1996) had a simple solution to the HR department ‘problem’ -

“Why not blow the sucker up?”

and added -

“Human resources has come to the proverbial fork in the road.  One path leads to a highly automated employee services operation…. The other leads straight to the CEO’s office.”

What he didn’t cover in any detail was what the HR director would do once they got there (having never been a strategic HR director himself).  Stewart is now the MD and editor of Harvard Business Review (HBR), a journal that has also failed to come up with an answer to maximising HR’s impact on the bottom line, despite publishing many questionable ‘solutions’ in the meantime (Prahalad and Hamel’s ‘core competence’ theory being probably the worst culprit, IMHO, although W. Chan Kim and Renée Mauborgne’s piece on ‘Blue Ocean Strategy’ gets my personal award for the most crass HBR article of all time).  I think it’s high time he blew that sucker up as well.

1998

Then Dave Ulrich turned up on the scene with his own HBR article entitled “A new mandate for human resources” where he argued -

“In recent years, a number of people who study and write about business have been debating whether we should do away with HR. The debate arises out of serious and widespread doubts about HR’s contribution to organizational performance. And as much as I like HR people, I must agree that there is a good reason for HR’s beleaguered reputation. It is often ineffective, incompetent, and costly; in a phrase, it is value sapping. But the truth is that HR has never been more necessary.”

This was a very clever article.  Ulrich knew his audience.  At a single stroke he wrote off HR departments as ineffective but then held out the prospect of a promised land, for the very same people who were so obviously ineffective, with his magic wand that would transform them all into strategic, business partners. He also remembered that when ‘personnel’ people were struggling in 1991 they were happy enough to just change their name rather than their modus operandi.  So he offered them an opportunity to pull the same stunt again, with new titles, only to suggest a full decade later, in …

2008

… at a conference hosted by PwC, that HR had failed to make his model work, rather than admit he had produced a seriously flawed model (which remains fundamentally flawed despite his more recent amendments).

Which roughly brings us up to the present day.

2011

So what are the key items on the organisational, HR agenda now, when HR no longer pretends it does not have a bottom line?*

  • Human capital management and reporting
  • Evidence based (HR) management methods
  • Tougher professional standards for HR people (SHRM is currently working on this)
  • Demonstrating added value and ROI

So, after two decades, HR has arrived right back at the same historical junction.  Of course, some HR departments have already tried to get away with their re-naming stunt once more – this time calling themselves ‘Human Capital’. Others are stuck on a vicious, circular path that always leads back to the transactional ghetto still fooling themselves that efficient transactions have something to do with value – but they are no longer fooling anyone else.

For personal development linked to this topic visit the Consummate Professional Series

*But see Ulrich’s 2003 book “Why the bottom line isn’t!”

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HR garbage in, HR garbage out

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As someone who regularly gets involved in HR data management I have inevitably come across the work of the two biggest players in the field of data production, SAP and Oracle.  SAP (see slide 5) even misinterpreted my own HR Maturity Scale to help sell their products (which they used without my permission or guidance, I hasten to add).

Yet all HRIS (HR Information Systems) providers fail to follow their own golden rule of IT – ‘garbage in, garbage out’ – which has always been a founding principle since the birth of the computer age.

The whole point of any management information system, HR or otherwise, is to add value in some way – management that does not add value is redundant.  So the data used has to provide information that reveals something about the output, cost, revenue or quality of the organisation. If it does not serve this purpose it is only fit for the garbage bin. So what information comes out of a typical HRIS? Basic record keeping including -

  • How many people are employed (although even this is amazingly difficult to pin down in a dynamic environment)
  • Whether they are absent or not (assuming they are accurately and honestly registered as such)
  • How much they cost in salary and benefits (but nothing about what value they add) and
  • Whether they completed their last appraisal (which may or may not have been a pointless exercise).

This type of data has to be regarded as garbage though until some sense can be made of it in value terms.  Interestingly, Oracle’s own VP of HR, Vance Kearney, once happily declared (at a conference on HR Strategy) that he had nothing to do with strategy and so his own department was merely an ‘admin’ function (as was Neil Roden’s HR function at RBS apparently).  This admission places Oracle itself at Stage 1, the lowest value Stage for HR on the Maturity Scale, so don’t raise your expectations too high of Oracle ever teaching you how HR can add value.

Of course to turn HR data into useful, evidence-based, management information requires –

  • A systematic way of deciding how many people you should be employing at any particular point in time
  • An effective performance management system that tells you whether those at work are performing well (and whether you can afford to do without the ones that are absent)
  • A meaningful review process, rather than the sort of anodyne performance reviews and personal development planning processes often used as a substitute, that will provide a clear view of what value is achieved by each employee – and this could be a negative value (it’s a pity none of the banks had such a system in place)

All of these, by their very nature, are difficult to design and implement effectively; but then that is precisely why they offer such a huge, competitive advantage.  It is the ability to rise to this challenge,  using garbage-free, evidence-based, value-driven information systems that will mark out the best organisations from those who employ expensive HR bureaucrats.

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