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.
Effectiveness=The extent to which goals have been met.
Efficiency=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.Figure shows a general approach to evaluating the efficiency and effectiveness of HR activities.
Overview of the
Evaluation Process for HR
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.
2. 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. There are 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
3. HR AUDIT
One general means for assessing HR effectiveness is through an HR audit, similar to a financial audit. An HR audit is a formal research effort that evaluates the current status of HR management in an organization. Through the development and use of statistical reports and research data, HR audits attempt to evaluate how well HR activities have been performed, so that management can identify what needs to be improved.
HR audit=A formal research effort that evaluates the current state of HR management in an organization.
An HR audit begins with a determination by management of the objectives it wants to achieve in the HR area. The audit compares the actual state of HR activities with these objectives, as the sample audit in Figure does.
Sample HR Audit
Checklist
4. USING HR RESEARCH FOR
ASSESSMENT
HR research is the analysis of data to determine the effectiveness of past and present HR practices. Research in general can be categorized as primary or secondary.
In primary research, data is gathered firsthand for the specific project being conducted. Attitude surveys, questionnaires, interviews, and experiments are all primary research methods. Secondary research makes use of research already done by others and reported in books, articles in professional journals, or other sources.
Individuals who plan to do primary research should decide first what they wish to study. Examples of primary research topics are causes of nursing employee turnover, employee attitudes about flextime, and the relationship of preemployment physical exams to workers’ compensation claims.
HR practitioners do primary research when they conduct a pay survey on computer system jobs in other companies in their geographic area or a study of turnover costs and reasons that employees in technical jobs leave more frequently during the first 24 to 30 months of employment. Thus, primary research has very specific applications to resolving actual HR problems in particular organizations.
The following sections describe some primary methods often used in HR research: experiments and pilot projects, employee attitude surveys, and exit interviews.
HR research = The analysis of data from HR records to determine the effectiveness of past and present HR practices
Primary research=Research method in which data is gathered firsthand for the specific project being conducted.
Secondary research = Research method using data already gathered by others and reported in books, articles in professional journals, or other sources.
EXPERIMENTS AND PILOT PROJECTS
Experiments and pilot projects can provide useful HR insights. An experiment involves studying how factors respond when changes are made in one or more variables, or conditions. For instance, to test the impact of flextime scheduling on employee turnover, a firm might allow flexible scheduling in one department on a pilot basis. If the turnover rate of the employees in that department drops in comparison with the turnover in other departments still working set schedules, then the experimental pilot project may indicate that flexible scheduling can reduce turnover. Next, the firm might extend the use of flexible scheduling to other departments.
EMPLOYEE ATTITUDE SURVEYS
Employee opinions can be used to diagnose specific problem areas, identify employee needs or preferences, and reveal areas in which HR activities are well received or are viewed negatively. For example, questionnaires may be sent to employees to collect ideas for revising a performance appraisal system. Another common use of a questionnaire is to determine if employees are satisfied with their benefits programs.
Questionnaires can be distributed by supervisors or the HR unit, given out with employee paychecks, or mailed to employees’ homes. More accurate information usually is obtained if employees can provide their input anonymously.
New ways to obtain employee survey information include electronic mail (e-mail) surveys and interactive telephone surveys using touch-tone responses.
The attitude survey focuses on employees’ feelings and beliefs about their jobs and the organization. By serving as a sounding board to allow employees to air their views about their jobs, their supervisors, their coworkers, and organizational policies and practices, these surveys can be starting points for improving productivity. Some employers conduct attitude surveys on a regularly scheduled basis (such as every year), while others do so intermittently. As the use of e-mail has spread, more organizations have begun conducting attitude surveys electronically.
Attitude surveys can be custom-designed to address specific issues and concerns in an organization. But only surveys that are valid and reliable can measure attitudes accurately. Often a “research” survey developed in-house is poorly structured, asks questions in a confusing manner, or leads employees to respond in ways that will give “favorable” results.
By asking employees to respond candidly to an attitude survey, management is building up employees’ expectations that action will be taken on the concerns identified. Therefore, a crucial part of conducting an attitude survey is to provide feedback to those who participated in it. It is especially important that even negative survey results be communicated to avoid fostering the appearance of hiding the results or placing blame. Generally, it is recommended that employee feedback be done through meetings with managers, supervisors, and employees; often this is done in small groups to encourage interaction and discussion. That approach is consistent with the most common reason for conducting an attitude survey—to diagnose strengths and weaknesses so that actions can be taken to improve the HR activities in an organization.
EXIT INTERVIEWS
One widely used type of interview is the exit interview, in which those who are leaving the organization are asked to identify the reasons for their departure. This information can be used to correct problems so that others will not leave. HR specialists rather than supervisors usually conduct exit interviews, and a skilled HR interviewer can gain useful information. A wide range of issues can be examined in exit interviews, including reasons for leaving, supervision, pay, training, and the best-liked and least-liked aspects of the job.
Most employers who do exit interviews use standard questions so the information is in a format that allows summarizing and reporting to management for assessment.
Exit interview=An interview in which those leaving the organization are asked to identify the reasons for their departure.
Departing employees may be reluctant to divulge their real reasons for leaving because they may wish to return to the company some day. Also, they may fear that candid responses will hinder their chances of receiving favorable references.
One major reason employees commonly give for leaving their jobs is an offer for more pay elsewhere. However, the pay increase may not be the only factor. To uncover other reasons, it may be more useful to contact the departing employee a month or so after departure. Also, former employees may be more willing to provide information on questionnaires mailed to their homes or in telephone conversations conducted some time after they have left the organization.
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