ASSESSING HR EFFECTIVENESS

Productivity, quality, service, absenteeism, and turnover are all measurable—and they are related to the way activities are performed in an organization. Yet, there is a long-standing myth that one cannot really measure what the HR function does.

That myth has hurt HR departments in some cases, because it suggests that any

value added by HR efforts is somehow “mystical” or “magical.” None of that is true; HR—like marketing, legal, or finance—must be evaluated based on the value it adds to the organization. Defining and measuring HR effectiveness is not as straightforward as it might be in some more easily quantifiable areas, but it can be done.

Effectiveness for organizations is often defined as the extent to which goals have been met. Efficiency is the degree to which operations are done in an economical manner. Efficiency can also be thought of as cost per unit of output. To be effective, organizations must be able to achieve their goals, but must reach them using limited resources efficiently. For example, providing on-site child care for all employees might help an employer to achieve an effectiveness goal of reducing turnover, but it could be too expensive (reducing efficiency of expenditures) for that employer to implement.

Other departments, managers, and employees are the main “customers” for HR services. If those services are lacking, too expensive, or of poor quality, then the organization may have to consider outsourcing some HR activities. The HR department is an organization within an organization. What it does (or does not do) affects the entire organizational system. To function effectively, HR needs a clear vision of what it does and whom it serves. That perspective should unify the HR staff and provide a basis for making decisions. HR can position itself as a partner in an organization, but only by demonstrating to the rest of the organization that there are real links between what HR activities contribute and organizational results. To demonstrate to the rest of the organization that the HR unit is a partner with a positive influence on the bottom line of the business, HR professionals must be prepared to measure the results of HR activities. Then the HR unit must communicate that information to the rest of the organization.

Measurement is a key to demonstrating the success of the HR activities.

The contribution of the HR unit’s efforts to organizational effectiveness and the efficiency of the department’s activities should both be measured. Studies of large and medium-sized firms in the United States have found relationships between the best HR practices and reduced turnover and increased employee productivity.

Further, those practices enhanced profitability and market value of the firms studied. A high-quality, highly motivated workforce is hard for competition to

replicate, which is an advantage that improves organizational effectiveness. Data to evaluate performance can come from several sources. Some of those

sources are already available in most organizations, but some data may have to be collected. Considered here are using existing HR records, an HR audit, HR research for assessment, and exit interviews.

Assessing HR Effectiveness Using Records

With the proliferation of government regulations, the number of required records has expanded. Of course, the records are useful only if they are kept current and properly organized. Managers who must cope with the paperwork have not always accepted such record-keeping requirements easily. Also, many managers feel that HR records can be a source of trouble because they can be used to question past managerial actions.

Another view of HR record-keeping activities is that HR records serve as important documentation should legal challenges occur. Disciplinary actions, past performance appraisals, and other documents may provide the necessary “proof” that employers need to defend their actions as job related and nondiscriminatory.

Records and data also can provide a crucial source of information to audit or assess the effectiveness of any unit, and they provide the basis for research into possible causes of HR problems. The HR Perspective reports on a study of the effectiveness.

Jac Fitz-Enz, who studies HR effectiveness, has suggested some diagnostic measures from records to check the effectiveness of the HR function. Note how each of the following measures requires accurate records and a comprehensive human resource information system:

-HR expense per employee

-Compensation as a percent of expenses

-HR department expense as a percent of total expenses

-Cost of hires

-Turnover rate

-Absence rate

-Workers compensation cost per employee