A guide to KPIs for organisational success
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Whether working in sales or any other major department there are metrics that help measure success and HR is no different. HRD Connect helps guide you through all the key performance indicators (KPIs) to help judge HR effectiveness in your organisation.
The lifeblood of any organisation is the talented people that comprise it and it is the HR team’s job to track down, entice and hopefully hold on to these employees by maximising their full potential to propel not just the company forward, but it’s personnel too. To achieve this, HR teams must develop strong recruitment practices, alongside effective employee development and management programs. But once in place it can be difficult to know just how effective all these layers actually are at improving the overall health of a company. To help measure HR performance, efficiency and overall effectiveness, HR professionals can use a variety of key performance indicators (KPIs).
A quick search online for HR metrics will result in a plethora of articles all touting massive lists of various KPIs essential for measuring HR effectiveness, but the applicability of each depends on the wider goals the company has and the HR strategy it wishes to implement to achieve them. Each business will have their own unique set of needs and wants, with some desperate to plug a hole that is leading to staff jumping ship for greener pastures, while another may want to alter its HR strategy to allow it to automate more of its employee processes or make the company’s brand more attractive to prospective hires. For each of these examples, a company would need to rely on a very different set of KPIs in order to measure its HR performance within the context of each objective. In summary, it is important that HR teams set goals first, and outline the underlying issues they wish to resolve, before looking at particular metrics that have data capable of assessing whether they ultimately are succeeding or failing in these areas.
But above all, HR professionals must also recognise that much of the data at their disposal, despite the many insights it holds, has its limitations too. After all, HR metrics are great at telling a company about the what, but are not very good at helping a business understand the why. Take employee turnover, for example, which refers to the number of staff who leave a particular company and must be replaced by new employees. If employee turnover is high there is clearly an issue, but that metric alone won’t offer majors insights that will help the company understand why it can’t hold on to valuable talent. The KPI does, however, help the company begin to ask the right questions such as why is employee turnover so high in the first place? Is the recruitment process at fault or are there not enough opportunities for growth at the company? In short, HR metrics help companies to highlight issues, but it is up to HR professionals to dig deeper into the data and formulate real solutions. By using HR metrics, human resource professionals are able to ultimately make more informed decisions and make adjustments to HR practices that are supported by facts rather than feelings – something which is essential if its findings and proposed solutions are going to be funded and accepted by management.
And therein lies the true power of HR metrics, which is their ability to help human resource professionals communicate with a company’s management team in a manner they understand: numbers. Because in the end, if an HR department cannot measure its own effectiveness then it is unable to adequately shows its impact on what matters most – the company’s bottom line.
Now that we have highlighted the power and limitations of HR metrics it is worth providing a short list of some of the most valuable KPIs for helping companies measure HR performance in their organisation from everything to talent acquisition and management to employee progression and development:
This is one of the most important metrics for gauging HR effectiveness in the area of talent acquisition, as it measures the total number of days it takes to fill a vacant position from the time of the job listing to the new hire signing the employee contract. If the time to hire is too high it is likely that the HR team does not have a strong talent acquisition strategy in place or the company’s brand is not well known or particularly attractive to prospective employees.
Put simply, this measures the time it takes for a new hire to reach a level of competency in their job where they are able to contribute to a satisfactory level. This metric tends to be determined by the overall effectiveness of the HR onboarding practices, the experience the candidate in question holds and the level of support that the new recruit is given in the first few months of starting. A lower time to productivity can significantly improve a business’ performance.
Cost-per-hire (CPH) measures the amount of capital spent at every part of the hiring process. This metric is calculated by considering cost points like the amount of money allocated towards marketing the role on job sites or paying a recruitment agency a fee to find the right candidate, as well as things like background checks, relocation expenses and assessment test providers. If a lot of money is being spent on external costs then a company may want to consider investing into the creation of an internal talent acquisition team or simply take a second look at using a different recruitment agency or change up the marketing strategy.
Recruitment is an expensive process, but even after finding the right candidate and offering them a contract of employment there is no guarantee that the individual will accept the offer. By calculating the number of offers accepted divided by the amount of contracts offered, it will give a company its acceptance rate. If the acceptance rate is too low (40% or below) then it is signal to the company that it may need to improve candidates
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If there are too many people leaving a company early (less than a year), it is a sign that there is a problem. Either the people that keep getting hired are not the right fit for the company or not the right match for the role that they’re filling. And considering how expensive the hiring and development process is a company should do its best to keep the employee turnover rate as low as possible. For a company like consumer goods multinational Unilever, employee churn is a metric it has worked to reduce in order to keep performance high and costs low. In an interview with the Chartered Institute of Personnel and Development (CIPD) the company’s Chief Human Resources Officer Doug Baillie explained: “Our attrition has been lower than the rest of the markets for the last three years. So, that’s a good sign because it means we are keeping our people, and getting a better return from our investment. We also know that our people are highly engaged…. Our valuable people are staying and they are engaged, and these are leading indicators of business performance.”
This metric goes hand in hand with the one above, as if the average time since an internal promotion has been given is very high, then it is likely that top talent will look to move on in order to get the type of career progression that they seek.
Despite HR professionals not wanting to treat staff like numbers off a spreadsheet it is essential that do in a literal sense. By taking a company’s total revenues and dividing by the total number of employees it helps a business understand how efficient it is utilising its staff. Having a relatively high revenue per employee is a by-product of a company that is squeezing the most out of its personnel. Too low, and a company may need to look at cost-cutting measures and reducing its overall headcount.
This measures how strong a company’s human capital is at being able to actually execute its wider goals and growth plans. The metric is calculated using the following formula (Vacant roles / total roles) x (Number of employees with the desired competency rating / total number of assessed candidates) x 100. According to the SHRM, this metric is crucial for assessing whether a company’s workforce is capable of propelling the business along its desire path.
One of the most important KPIs is employee engagement which refers to the degree that staff members are actively involved with the company, its wider growth strategy and its core objectives. In another interview with the CIPD, Brian Callaghan Head of Leadership Development at steel and mining company ArcelorMittall explained how it has strengthened its talent base by using HR metrics and data analysis. “There has been a growing acknowledgement amongst leadership that a positive climate and engaged employees deliver value,” he said. “I believe that if you have good people processes that are executed by good people managers you can do remarkable things.”