How To Measure HR Effectiveness: Finding The HR KPIs That Matter The Most
2 July 2021
We all know that people and talent are critical to any business’s success, and HR is at the heart of finding, attracting and retaining that talent. But how do you know the HR function is delivering everything it needs in the most effective way possible? Here I look at how to identify the most meaningful indicators for measuring HR effectiveness.
Many articles list so-called “must-have HR KPIs”. And while some indicators are certainly more common and useful than others, the truth is there’s no one-size-fits-all approach to measuring HR success. What works in one business may not help yours.
The most relevant, most meaningful indicators for you are those that are linked to your HR strategy. Every HR team has different goals and priorities. Your current priority may be solving a staff retention crisis. Another organisation may be coping with increasing automation. Another may be in need of a serious boost to their employer brand. So it makes sense that different indicators are more appropriate for different HR teams.
Goals. Questions. Then indicators
This is why it’s so important to start with your goals, not the indicators themselves. Start by defining your HR goals and priorities, and identifying how HR will help the organisation deliver its overall strategy. No doubt you’ll have some unanswered questions that you need answering before you can achieve those goals (such as, “Why are people leaving?”). Only once you have identified your goals and questions can you pinpoint the indicators that will help you answer those questions, measure your effectiveness in that area, and, ultimately, deliver your goals.
Let’s look at some of the key areas where you might want to measure HR effectiveness. Again, not all of these will link to your priorities, so be sure to focus your efforts where they will deliver the most strategic reward.
Measuring HR outcomes
This is all about determining whether HR is delivering the outcomes necessary for the business’s success.
This may involve assessing:
- How happy and satisfied are our employees?
- How engaged are employees with their work and the organisation?
- What is our employee churn rate?
- What is our absenteeism rate?
- What is the impact of our training?
Common metrics for assessing outcomes include:
- Employee Net Promoter Score (eNPS)
- Employee satisfaction index
- Absenteeism rate
- Employee productivity rate
- Average length of service
- Attrition rate
Assessing HR service delivery
Essentially, this involves measuring whether the service HR delivers is effective – and aligned with the company’s overall strategy, values and behaviours.
This may mean measuring factors like:
- Is the HR team itself delivering a good service?
- How effective is the induction programme?
- Are employees being developed sufficiently?
- How likely are employees to recommend the company
- How do employees rate the performance management process?
Common metrics for assessing HR service delivery include:
- Return on investment
- Benefit satisfaction
- Failure rate of new hires
- Training effectiveness
- Performance of new hires
Measuring HR internal efficiency and effectiveness
This means assessing whether HR services are being delivered as efficiently as they could be.
Key things to measure here may include:
- Are we recruiting through the most effective channels?
- How effective are we at recruiting the competencies the business needs?
- What are our costs-per-hire?
- What are our training costs?
- How effective are the different types of training?
Common metrics for assessing HR internal efficiency include:
- Return on investment
- Average time taken to fill vacancies
- Recruitment channel analysis
Auditing HR compliance
Concerning all the legal requirements surrounding HR, this is perhaps the least exciting area to measure. Yet, interestingly, I find this is the area where HR teams focus too much of their time and attention. Clearly, compliance is important and something that needs monitoring regularly, but this must be done in conjunction with measuring those functions that are related to the organisation’s strategic priorities.
Key things to measure here may include:
- Are our policies and practices up to date?
- Are employees properly trained on new policies and practices?
- Do employees understand key policies and practices?
- Is our employee handbook up to date?
- Are we meeting our equality and diversity obligations?
Common metrics for assessing HR compliance include:
- Percentage of employees trained in company policies
- Salary competitiveness
- Diversity rate/employee demographics
- Gender pay gap
- Number of diversity initiatives
Thinking outside the (KPI) box
Big data-related technology has brought many new and exciting ways to measure HR effectiveness. For example, lengthy and expensive annual staff surveys are gradually being replaced by short “pulse” surveys that ask employees a quick question on a much more regular basis. This allows the HR team to build up a much more accurate picture of staff sentiment and quickly respond to what the data tells them.
In another example, HappyOrNot terminals can be used to get daily, anonymous feedback from employees. When placed in high-traffic areas like meeting rooms or the canteen, the terminal asks an employee a simple question and the employee responds by choosing between one of four smiley faces that best demonstrates how they feel.
The beauty of simple, continuous feedback systems like HappyOrNot terminals or pulse surveys is not just the quick access to insights, but also the ability to monitor changes and initiatives made in response to the feedback to see how effective those changes have been.
Where to go from here
If you would like to know more about measuring HR effectiveness, check out my articles on:
- How Do You Measure Your Employer Brand?
- How Do You Measure Employee Engagement?
- Measuring Recruitment Effectiveness
Or browse the KPI Library to find the metrics that matter most to you.
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