Measuring the Effectiveness of HR Systems

1. Measuring the Effectiveness of HR Systems OS652 HRM Fisher August 31, 2004

2. Agenda • How do we know if HR practices are adding value to the firm? • What are the advantages and disadvantages of different types of measures?

3. SHRM Announcement • Society for Human Resource Management • Good opportunity to learn more about HR issues outside of the classroom • Membership comes with excellent research and networking resources • Clarkson Chapter holding its first meeting of the year tomorrow night • Wednesday Sept. 1, 5:30 pm • 177 Snell • Organizing, discussing officer positions

4. Measuring Outcomes • How do we know if the HR function is operating effectively? • What kinds of outcomes could we measure? • Assessment procedures include • HR Audit • Benchmarking • HR Scorecard • Assessment should answer the question “What is HR’s contribution of the success of the firm?”(Becker & Huselid, 2003, HR Magazine)

5. Some traditional measures • HR FTE/total firm employment • Retention rates • Recruiting costs per hire • Number of grievances • Recruiting cycle time • Training costs/payroll • HR expense/total FTE • Response time for benefit information requests What are the pros and cons of using these different measures? What are they really telling you?

6. Business/HR Scorecard • Originally developed as business scorecard (Kaplan and Norton); adapted for use in HR • Specifies the key HR deliverables • Workforce mindset • Technical knowledge • Workforce behavior • Contents of each box could vary according to specific firm strategy and goals

7. HR Scorecard

8. HR systems must be integrated • Key element of the HR scorecard is to assess alignment and integration • Can’t recruit for creativity and then reward or promote people for following the status quo. • Considerations for integration • Purpose • Language • Integration is often harmed by following a “best practices” approach to HR

9. Benchmarking vs. Strategic Performance Metrics Source: Becker & Huselid (2003). Measuring HR? HR Magazine.

10. Costco Example • Pays employees better and provides more generous benefits than other large-scale retail operations (guess who??) • Turnover is relatively low for retail (24%) • Wall Street analysts feel the shareholders may be suffering as a result • Recently accused of sex discrimination in promotions… Source: Zimmerman, A. Costco’s Dilemma: Be Kind to it’s workers or Wall Street? Wall Street Journal, March 26, 2004.

11. HR Audit • Multiple types of audits • Compliance (for example, wage and hour audit for FLSA) • Best practices • Strategic • Function specific • Defining clear goals makes it easier to conduct an audit • Who conducts the audit? • Proactively finding problems and fixing them can be less costly than waiting for a lawsuit (risk management) • Boeing wage discrimination suit

12. Utility analysis • Focuses on specific HR practices rather than the system as a whole • Allows estimation of the dollar value of practices such as selection or training • Assumption is that decision-makers rely on financial data when allocating resources • Not always true • Expert recommendations carried more weight in an experiment conducted by Latham and Whyte (1994) Source: Latham, G.P., and Whyte, G. (1994). The Futility of Utility Analysis. Personnel Psychology, 47.

13. Calculating Utility • General model: Utility = Benefits – Costs • Problems often come about in estimating benefits • What is the dollar value of improved performance? • Relies on a number of assumptions Source: Sturman, M.C. (2003). Utility Analysis. Cornell Hotel and Restaurant Administration Quarterly.

14. For next class • Basics of employment law • Read Chapter 5. • Find at least one example of a corporation accused/convicted of violating employment law. • What is the ‘typical’ manager’s role in upholding employment law?