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HR- ROI. Strategically Aligned Measurement: ROI Evaluations - What’s Missing?. January 17, 2003. Jeanne Carsten & Luke Monck. Copyright: JPMorgan Chase. Staff function Tactical Focus on administrative efficiency Reactive Measures for compliance/ monitoring. Part of the executive team

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january 17 2003

HR- ROI

Strategically Aligned Measurement: ROI Evaluations - What’s Missing?

January 17, 2003

Jeanne Carsten & Luke Monck

Copyright: JPMorgan Chase

new paradigm for human resource professionals
Staff function

Tactical

Focus on administrative efficiency

Reactive

Measures for compliance/ monitoring

Part of the executive team

Strategic partner*

Focus on alignment of HR to business strategy

Proactive

Measures for strategic decision-making

* Ulrich, 1997

New Paradigm for Human Resource Professionals

…Old Paradigm

…New Paradigm

roles and responsibilities
Determine strategic vision

Strategic vision informs the goals of the organization

Communicate the vision/goals to organization

Manage the business systems through which these goals are accomplished

Identify the relationship between HR systems and the strategic goals

Determine which HR systems are appropriate levers for attaining organizational goals

Develop initiatives for effecting these levers

Assess the impact of these initiatives

Roles and Responsibilities

…Management

…Human Resources

importance of metrics and measurement
Importance of Metrics and Measurement
  • Build a fact-based view of human capital levers within the business system
  • Provide actionable information
  • Demonstrate value of human capital investments
  • Prioritize human resource initiatives to maximize impact and allocate limited resources
using metrics to drive hr business priorities
Using Metrics to Drive HR & Business Priorities

Evolution

  • Develop system view
  • Diagnose alignment / gaps
  • Assess movement

Impact of Measurement on Performance Trajectory

    • Evaluation
  • Articulate links between HR programs and business needs
  • Conduct programmatic assessments
      • Education
  • Educate HR and business on role and uses of measurement
  • Build capability and tools (skills, metrics, databases)
hr measurement moving up the performance trajectory
Focus: improving the effectiveness and delivery of HR function and justifying costs

Identifies HR costs and benefits associated with improving the process

Usually expressed in dollars

Example: Reducing turnover reduces costs associated with recruiting, staffing, training and development, etc.

Focus: demonstrating impact of HR on the strategic goals of the organization

Establishes empirical relationships between HR process and organizational goal of interest

Expressed in any metric aligned to the goals of the organization

Example: Reducing turnover in service delivery staff increases capacity and quality, and thus customer loyalty/ share of wallet

HR Measurement: Moving Up the Performance Trajectory

…Programmatic

…Strategic

implementing programmatic measurement
Implementing Programmatic Measurement

Essentially creating an exhaustive list of costs and benefits associated with the HR process in question. Required KSAs: Analytic skills

Once the costs have been fully explicated the HR practitioner can obtain a cost per hire (actually turnover) and illustrate the revenue benefit associated with reduction of amount of turnover

  • Manager’s time to terminate/hire
  • HR time to terminate/hire
  • Recruiting/ advertising costs
  • Selection tools/ onboarding process
  • + Entry training expense
    • Total Cost of Turnover
implementing strategic measurement
Implementing Strategic Measurement

Required KSAs:

  • Research methods
  • Organizational development/ systems view
  • Statistical analysis
  • Organization of databases

High Turnover Low Customer Satisfaction

- X ppt Turnover + Y ppt Customer Sat.

where to start establishing a human resource measurement strategy
Where to Start: Establishing a Human Resource Measurement Strategy

1. Begin with the strategic objectives

2. Identify business outcome metrics to measure those objectives

3. Hypothesize relationship between HR processes and business outcomes

4. Create HR strategy based on hypothesized relationships

5. Test hypotheses through organizational research

6. Determine impact of change in HR lever on key outcomes

7. Develop initiatives to impact lever (measurement is an initiative)

8. Build measurement strategy

9. Integrate metrics into management scorecard

slide10

Culture

Levers for Change

  • Formal Levers
  • Vision/Values/Mission
  • Strategic Direction
  • Goals
  • Work Process
  • Technology
  • Structure and Roles
  • Information & Measurement
  • Decision Making Processes
  • Recruiting & Training
  • Performance Management Recognition
  • Compensation

Measurement Tools:

Behavior / output metrics

Organization Scorecards

Behaviors

What we need people to do

Results

What we need to accomplish

  • Leadership Practices
  • Creating Alignment
  • Communicating
  • Gaining Commitment
  • Shaping and Reinforcing Behavior
  • Aligning Resources
  • Building Durability

Pinpoint behaviors of interest

*Culture is a pattern of behaviors that is reinforced

and pursued by people and systems over time

 CLG 2001

case in a commercial bank
Case in a Commercial Bank
  • Commercial banking segment of a large multinational financial organization
  • Undergoing organizational change designed to transform the structure and processes and realize latent market sales revenue
  • Assess the impact of people management on the achievement of latent sales revenue
  • Objective is to align management of human resources to business goal
  • Create a strategic HR dashboard
key levers
Key Levers
  • Turnover/ retention
  • Recruitment/ selection
  • Training & development
  • Performance management
  • Leadership
  • Culture

Capacity Management

Sales roles filled with qualified people

Competency Management

Workforce ability/ performance level

Environment

Direction and motivation

programmatic measurement of turnover
Programmatic Measurement of Turnover

Measurement Goal: Identify the cost of turnover

Population of interest: Consumer Bankers

Termination costs:

  • Cost of manager’s time
  • Cost of HR time

Recruiting costs:

  • Cost of recruiting and selection (internal and external)

Development costs

  • Cost of entry level training
programmatic measurement of turnover14
Programmatic Measurement of Turnover
  • Established the programmatic cost of turnover of a Consumer Banker (internal and external)
  • Turnover in 2001 among Consumer Bankers
  • A 1% reduction in turnover would lead to $XXX in savings for the organization

Note: Excludes costs associated with the learning curve, performance reduction for employees working among new hires, etc.

strategic measurement of turnover
Strategic Measurement of Turnover

Measurement goal: Identify the impact of turnover on strategic goals of the organization

Population of interest: Consumer Bankers

Step 1

  • Established correlational relationship between Consumer Banker turnover and sales revenue (as measured by percentage of goal achieved) at the branch level

Step 2

  • Regressed Branch sales performance on turnover, branch location, and branch size
  • Established R squared for the model
  • Established the beta weight for turnover on branch performance
illustrated example strategic measurement of turnover
Illustrated Example: Strategic Measurement of Turnover
  • Beta weight = -.221
  • Average sales achieved = $
  • Given a -.221 change in turnover ratio we can expect a 1% change in goal achieved
  • Can calculate impact of change in turnover ratio on sales revenue
next step managing the metrics
Next Step - Managing the Metrics
  • Sales turnover integrated into manager objectives
  • HR partners with managers to identify reasons for turnover and develop solutions
  • Managers accountable for level of turnover

For example:

challenge establishing the relationships through organizational research
Challenge: Establishing the Relationships through Organizational Research

Multiple Baseline Design (Cook and Campell, 1990)

  • Establishes impact through staggered implementation
  • Eliminates need for control group
  • Ideal when the organization rolls-out an initiative in waves

ABAB Design (Cook and Campell, 1990)

  • Establishes impact through the implementation, removal, and re-implementation
  • Eliminates need for control group
  • Ideal when distribution of results/ measurement is the initiative

Naturally occurring control group

  • Does not establish impact but can eliminate some alternatives
  • Ideal when measurement strategy was developed post-hoc and historical data are available
importance of metrics and measurement19
Importance of Metrics and Measurement
  • Build a fact-based view of human capital levers within the business system
  • Provide actionable information
  • Demonstrate value of human capital investments
  • Prioritize human resource initiatives to maximize impact and allocate limited resources
slide20

HR- ROI

Strategically Aligned Measurement

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