Post on 28-Mar-2023
NEED• to justify HRM existence and value of HR function
• to demonstrate HR contribution to organizational performance as a strategic partner
• To provide insight into the difficulties of measurement
• To speak in terms of deliverables
Definition-HR evaluation• ‘to determine the value of HR towards organizational goals,
• BRATTON-‘the procedures and processes that measure, evaluate and communicate the value added of HRM practices to the organization’
Benefits
• Assessment of the HR impact on performance /organizational goals
• Identify the bottom line contribution
• Strength and weaknesses of HR function
Measuring the impact on business performance
• What should be evaluated?• How should be evaluated?• At what level it should be evaluated?
• What are the criteria of evaluation?
Overview of HR Evaluation
HR EVALUATION
SCOPE
FOCUS
STRATEGIC LINKAGE
LEVELOF
ANALYSIS
EVALUATION CRITERIA
Overall effectiveness
departmentprofessionals
practices
Reactive or proactive
strategicmanagementoperational
outcomes
processes
narrow
How to be evaluated? ( HR audit)
Practices offered by HR dept
Professionals-4 clusters of competencies
research
Knowledge of HRPersonal credibility
Knowledge of business
activity
Customer value
Cost/benefit
Knowledge of change process
HR dept.Effectiveness of functionability
HRM and performance• Do HRM practices make a difference to business results?Investment on HRM reflect with a result of economic return
• When?If organizations take an investment perspective of HR
Investment-Oriented Organization
• Sees people as central to mission & strategy
• Mission statement & strategic objectives espouse value of human assets in achieving goals
• Management philosophy encouraging development & retention of human assets
• Does not treat human assets in same ways as physical assets
Investment Orientation Factors
• Senior Management Values & Actions– Managers need “investment orientation” toward people
• Attitude Toward Risk– Investment in human resources inherently riskier
– Human assets never absolutely “owned” • Nature of Skills Needed by Employees
– The more marketable in skill development employee skills, the riskier the firm’s investment
Investment Orientation Factors
• Utilitarian (“Bottom Line”) Mentality– Attempt made to quantify employee worth through cost-benefit analysis
– “Soft” benefits of HR programs difficult to objectively quantify
• Availability of Outsourcing– Given availability of cost-effective outsourcing, investments in HR should produce highest returns & sustainable competitive advantages.
Researchers on impact of performance
Decade Researcher Linkage between HRM and firm performance
1980’s NKOMO Investment planning donot correlate with business performance
LEWIN et al No relationship
ULRICH Correlations found on specific HR practices and business results
1990’s YEUNG et al Alignment resulted in impact of performance
DELANEY Relationship between progressive HRM practices and performance in manufacturing firms
ARTHUR High commitment-high productivity-lower turnover than those of high control systems
Mac DUFFIE Integrated HRM practices correlated with high productivity in automotive plants
Linkage between HRM and firm performance- T V
Rao’s model
HR PRACTICES•training prgram•appraisal•rewards etc
OTHER FACTORS•Environment•Technology•Resource availability
HRCLIMATE•Proactiveness•Authencity•Openness•Risk taking
HROUTCOMES•Employee competency•Teamwork•Commitmment•Job satisfaction
ORGANIZATIONALEFFECTIVENES•Higher productivity•More profits•Cost reduction
Linkage between HRM and firm performance- BRATTON and GOLD model
HRM PRACTICES,PROGRAMMESPOLICIESSYSTEMS
OTHER FACTORS•economy•Technology•industry
HR/Employee PERFORMANCE MEASURES•INDIVIDUAL (ABSENTEEISM, TURNOVER ,Commitment)•GROUP(dynamics, processes,performance)
ORGANIZATIONALPerformance measuresOperating performance(Labour productivity/service quality)
Financial performance• profits•Market share•ROI
MEARUREMENT PROBLEMS• Accuracy of measurement variables• Disconnect between what is measured and what is important
• Financial performance measures are tangibles and HR are in tangibles
• Influence of extraneous variables• Difficult to demonstrate casual link
Trends creating the need for HR Evaluation
High levels of competition
Need for HR EvaluationBenchmarking
Transformation of employee contract(Job for life is not there)
Measures of HRM performance
HR MEASURES EXAMPLES PROBLEMS
Efficiency Cost per hireTime to fillTraining costsTime taken to process grievances
Do not reflect the talent value, fixation on cost reduction can reject more expensive decision options are of better value
Employee turnover % of employee leaving the firm More directly influenced by line managers than HR managers
Staffing ratios Ratio of HR staff per 100 employees Do not indicate how efficiently the resources have been used
Expenditure of resources
Cost of HR function Using fewer resources do not always suggest efficiency in utilization
Level of activity BenchmarkingNumber of people hiredNumber of people trained
No way to know if organization’s need are met
Employee attitudes
Satisfaction surveys More directly influenced by line managers than HR managers
Indicators of effectiveness of HR practices
HR Planning
Staffing training
Extent to which organization must hire in the open labor market, speed of filling up of positions internally by qualified candidates
Cost per hire, number of resumes received
Annual cost of training
More directly influenced by line managers who prepare sub ordinates for higher positions
Influenced by factors other than HR function
May not be related to training need for identification and hence performance improvement
Summary of HR practice measures
HR Practice Possible MeasuresStaffing Acceptance per offer ratio
Number of applicants contacted compared with those reporting for job interview
Time to fill a job Cost of filling a job Percentage of internally filled jobs Performance of hired applicants Ratio ob backup talent (number of
prepared backups in place for top jobs)Training and
development Cost per trainee hour Percentage of employees involved in
training Number of courses taught by subject Payroll expense per employee Time for new programme design Number of training days and programmes
held per year
Summary of HR practice measures
Performance appraisal
Acceptance of appraisal process by employees
Percent of employees receiving performance appraisal
Average merit increase granted by performance classification
Extent of which measurement systems are seen as credible
Safety and health
Lost work days Cost of injuries Incidence of injuries Trends in workforce illness
HR professionals
HR competencies
HR function Ratio of total employees to HR professionals (measure of productivity)
Ratio of rupees spent on HR function to total sales
Administrative costs (efficiency of HR function)
Performance against the annual HR department budget
Three clusters of HR Measures
HR MeasuresInternal operational
measures
Internal strategic measures
External strategicmeasures•Traditional
•Focus on efficiency, quality of services, speed of delivery•Appropriate whenHR is seen as cost centre
Assess effectiveness of HR Practices
in building organizational capabilities
Focus on effectivenessof HR Practices
obtaining satisfaction of key external stakeholders
Process Measures
(cycle time,Cost of HRPractices,quality
Outcome Measures(level of training
Evaluation,Job offer acceptRatios)
Organizational capabilities
Employee satisfaction
Change in Customer
satisfaction
Share holder satisfaction
(ROA)
Approaches to HR Evaluation
• The productivity of any function can be measured by some combination of cost, time, quantity or quality indices.
• These approaches of HRM measurement aims to demonstrate the relationship between HRM and organizational outcomes and to use this understanding to improve the quality of HR decisions,
General approaches to HR Evaluation
Approaches to HR evaluation
Stakeholder/Audit Approach
Utility/Analytical Approach
Business Consulting Approach
Focus To determine the satisfaction of key users with HR services
Cost benefit analysis, and determining financial utility of HR services
HR functions as a strategic business unit and helps customers achieve maximum value from HR products and services
Criteria of HR Effectiveness
Employee satisfaction surveys; Perceived effectiveness of HR; Absenteeism rate; Cost of HR as a percentage of sales; Average number of days taken on hire an employee
Asset method:Value of employees
(cost of training/total number of employees)
Expense model:Economic effects of
employee behaviour like absenteeism, turnover, etc.
Economic profitability:Employee’s contribution
to the firm’s performance (reward programme that improves productivity)
Cost benefit ratio:Comparing benefits of
HR practice to cost of delivery (ROI)
HR reviewed as profit centre
Quantitative measures: decrease in turnover translated in financial terms to determine money value of training benefits
Qualitative measures : changes in employee satisfaction index
Contemporary approaches to HR Evaluation
• Balanced scorecard• HR scorecard• Benchmarking• Business Excellence Model
Balanced scorecard• It is a resultant of the dissatisfaction of traditional financial measures for measuring the performance
• Kaplan and Norton• Based on stake holder approach• According to it , if a business is successful it is considered that the three stake holders of business are satisfied- customers, investors and employees
• Measurement -investors: financial performance, profits, market value, cash flow
-customers: market share, customer retention and commitment
Employee measures through balance scorecard
- productivity= output/input or output/total no. of employees
- People= turnover, absenteeism, employee commitment, satisfaction
- Process= linking employee perception of leadership to a manager’s salary increases
HR scorecard• It measures the effectiveness and efficiency of the HR Function in producing those employee behaviours that are important for a firm to achieve its strategic goals
• It shows the metrics used by the organization to measure HR activities as well as employee behaviour
• Provides the link between HR activities, employee behaviour and resulting organizational outcome and performance
Creating strategically resulted HR system – steps in using HR
scorecard• Defining business strategy• Outline the value chain of the company• Identify strategic organizational outcomes• Identify required workforce competencies and behaviour
• Identify relevant HR systems and practices• Design HR scorecard measurement• Periodically evaluate the measurement system.
Benchmarking • It denotes a comparison of selected performance indicators of an organization with those from different organizations, typically in the same industry, or with comparable organizations that are considered ‘ best in class’
Benchmarking – Purposes • Self-audit• Learn from others• Tool to create motivation to
change• Helps provide focus and set
priorities for HR manager• To assess improvement in HR
competencies over time
Identify HR practices to be benchmarked
Identify the team members of the benchmarking exercise
Identify the benchmarking partnersAgainst whom benchmarking will be done
Collect data from benchmarking partners
Analyze and interpret data
Prepare a written report of the findings
Determine performance gaps
Develop action plans
Benchmarking partners ( other relevant firms)
ABC
THE BENCHMARKING PROCESS
Business Excellence Model (BEM)
• It is designed to assist organizations achieve excellence through continuous improvement in the management and development of processes to encourage a wider use of best practice activities.
• The model assess the quality of performance of the organizational processes relative to previous years and to competitors or benchmark organizations.
BEM uses seven criteria to evaluate performance
• Result orientation• Customer focus• Leadership and constancy of
purpose• Management by processes and facts• People development and involvement • Partnership development• Public responsibility
• TATA Business excellence model• It uses MALCOLM BALDRIGE CORE VALUES
• 11 core values for high performing organization
MALCOLM BALDRIGE CORE VALUES• Visionary leadership• Customer centered• Organizational and personal learning• Valuing staff and partners• Agility• Focus on the future• Managing for innovation• Management by fact• Public responsibility and citizenship
• Focus on results and creating value• Systems and perspective