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Measuring the Effectiveness of HR Systems. OS652 HRM Fisher August 31, 2004. 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?. SHRM Announcement. Society for Human Resource Management

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Measuring the effectiveness of hr systems l.jpg

Measuring the Effectiveness of HR Systems



August 31, 2004

Agenda l.jpg

  • How do we know if HR practices are adding value to the firm?

  • What are the advantages and disadvantages of different types of measures?

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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

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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)

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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?

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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

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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

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Benchmarking vs. Strategic Performance Metrics

Source: Becker & Huselid (2003). Measuring HR? HR Magazine.

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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.

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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

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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.

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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


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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?