Measuring HR contribution

HRM and Organizational

Performance
Macro level
The Value of HRM for Organizational
Performance(Liu, Combs, Ketchen Jr. & Ireland)
• The results of 92 studies covering 19, 000 organization were
examined and confidently concluded that
• The skilled investments in HR increase productivity, decrease employee
turnover & greater financial returns
• These returns can be significantly magnified by effective coordination by HR
professionals
• The impact of HRM on performance is greater when HRM practices support a
firm’s business strategy
KSAs, Motivation & Empowerment
• KSAs not just for performing routine functions, but to step beyond
routine
• Motivate employees to exert discretionary effort
• But KSAs and motivation will not deploy discretionary effort if
organisational structure & job design block their efforts
• HRM practices need to help remove roadblocks and facilitate
employee productivity & enhance empowerment
HRM Planning
• Refers to the process wherein managers design the HR functions so
that it supports strategic business objectives
• HRM planning system is the foundation for the alignment of
individual employees’ actions with the firm’s strategy
HRM Practices
Empowerment
enhancing
practices
Flextime Employment
Grievance security
procedures
Participation
programs

Incentive
compensation
Training HRM
Planning Internal
Compensation promotions
Selection
level

KSA enhancing practices Motivation enhancing practices

Measuring HR Contribution
Micro level
Measuring Retention Strategy
Background
• SCB, a regional bank operating in 4 states with 60 branches
• It had grown from a single-state operation to a multistage network
through a progressive campaign and of acquisitions
• SCB faced the problem excessive employee turnover
Magnitude of Employee Turnover
• Annual turnover rate was 57% compared to an industry average of
26%
• SCB monitored turnover by job group, region and branch
• Branches had highest turnover rate, averaging some 71%
• Turnover was considered excessive in a few entry level, clerical jobs in
regional and corporate offices
• Much of the turnover occurred in early stages of employment(6-18
months)
• Departures due to retirement and disability were excluded
Determining the Causes of Turnover
• Exit interview data were examined, but accuracy was the concern
• So focus group was planned with 12 employees in each region for a
total of 6 groups for 6 regions
• 2 more groups were planned for clerical staff in corporate
headquarters
• Participant employees represented areas of highest turnover
Procedure Followed
• A statement of confidentiality
• Asked to write specific reasons why the participants felt their colleagues have left
and other will leave in future
• One person revealed one reason at a time and it was recorded
• When this step is completed as many as 60 items are listed
• Then integration of the reasons that resulted in 40 reasons
• Participants were asked to review all reasons & carefully select 10 the most
important reasons
• Participants sorted the 10 reasons by order of importance
• The process was completed for all the groups
Top Ten Reasons
1) Lack of opportunities for advancement
2) Lack of opportunity to learn new skills
3) Inadequate pay levels
4) Not enough responsibility and empowerment
5) Lack of recognition and appreciation
6) Lack of team work in branch
7) Lack of preparation for customer service problems
8) Unfair and unsupportive supervisor
9) Too much stress at peak times
10) Not enough flexibility in work schedules
The Solution Adopted
• The jobs were redesigned to expand the scope of the jobs with
increases in pay for the acquisition of skills and provide a clear path
for advancement
• All necessary support was given to employees including training
• This was implemented to address the top 5 reasons
New Job Levels
Banking Rep. Job Duties Hourly wage rate
($)
I Basic teller transactions 6.00

II Same as above +opening 7.50

&closing accounts,
savings bonds etc.

III Same as above +limited 9.00

liability consumer loans,
home equity loans,
applications for all
consumer loans etc.
Measuring Success
• Satisfaction survey (4. 2 on 5)
• Informal self assessments and actual demonstration in case of critical
skills (documentation, compliance etc.)
• Repeat training opportunity was given
• In some cases third chance was also given
• After 1 year of operation 2 employees were denied promotion
Business Impact Measures
• Branch employee turnover
• Staffing level
• Customer satisfaction
• Job satisfaction
• Deposits
• Loan volume
• New accounts
• Transaction volume
• Cross selling
Isolating the Effects of the Project
Data item Method of Method of
isolation converting data
Turnover BM/staff estimation External studies

Staffing levels BM estimation Company payroll

Customer satisfaction Customer input NA

Job satisfaction Staff inputs NA

Deposits, loan volume, BM estimates Standard value

new accounts (%margin)
Transaction volume, BM & staff estimates Standard (average
cross selling %margin)
Results
• Turnover reduction from 71% to 35%
• 30% of the branches were able to employ at least one less staff
member
• 10% of the branches were able to reduce the staff by 2
• The other results were considered as intangible benefits
Calculation of Business Results
• Several external studies estimated cost of one turnover ranging from
1.1 to 1.25 times annual earning
• 0.9 times was considered in this case
• The benefit was calculated as $4,625,000
Project Cost
Costs
Initial analysis
Program
Total cost was calculated as
development
$1,290,396
Participants time
BM Time
Salary increases
Administration
Evaluation
Return on Investment
• ROI = Net Solution benefit
divided by solution cost 4,625,000 - 1,290,396 X100
multiplied by 100 1,290,396
• Net solution benefit = Solution =258%
benefit – solution cost
So Measure HR contribution
Needed: A change in approach
• “ I invest in HR programs the way I invest in a machine tool. Can you
show me ROI”
• Success is accomplished through a rigorous program of accountability
for the function
• At the heart of accountability is measurement and evaluation
• An important tenet of CPI is nothing improves until it is measured
Trends: Increased Importance of HR Function

• Internal management & HR improvements are the

best ways to improve quality
• HR skill is second behind strategy
• Business capabilities and managing change processes
are HR competencies along with HR
Result – Based Approach to HRM
• Traditional • Result-Based
• New programs initiated by request or • Initiated after a legitimate need is
suggestion established
• A multitude of programs • Fewer programs with greater impact
• Exiting programs continue • Review existing programs & eliminate
• Count activities when necessary
• Measure impact
Result – Based Approach to HRM (Cont.)
• Traditional • Result-Based
• Limited involvement of • More involvement &
management collaboration
• Cost center • Investment
• HR staff unfamiliar with • Knowledge of operations,
operations, finance & business finance & business
Payoff of Measuring the HR Contribution
• Evaluation makes good economic sense
• Evaluation shows proof of results
• Results from evaluation encourage HR staff to focus on important
activities
• Results from evaluation can lead to additional resources
• Evaluation increases personal satisfaction and position