Helping HR to measure up: arming the ‘‘soft’’ function with hard metrics

Kate Feather

Abstract

Purpose – The purpose of this article is to highlight the more strategic role HR departments can play in

their organizations. By prioritizing the measurement strategy in organizations, HR leaders can

demonstrate to leadership the impact employees have on the business and how an investment in

internal processes and programs can boost engagement – and ultimately business results.

Design/methodology/approach – This paper outlines a four-step process for effective employee

engagement measurement: use behavioral and emotional outcomes; correlate employee engagement

survey results to meaningful outcomes; focus improvement efforts and investments on the high

impact/low performing areas; and re-measure to assess success. A series of de-identified examples

from PeopleMetrics clients illustrate the importance of following each step in the process.

Findings – By measuring employee engagement, tying the results to other HR and business metrics

and using the findings to target improvement efforts, organizations are demonstrating to leadership the

impact employees have on the business and how an investment in internal processes and programs can

boost engagement – and ultimately business results. As more organizations recognize the value of

using rigorous metrics to evaluate and optimize their workforces, the HR function will benefit because it

will be serving a more strategic function than it has traditionally been associated with in the past.

Research limitations/implications – These findings are based on the fieldwork experience of

PeopleMetrics.

Originality/value – The paper provides a very useful perspective for HR managers to consider,

particularly within organizations with extensive measurement systems.

Keywords Employee development, Human resource management, Human resource management research

Paper type Case study

Introduction

HR professionals looking to overcome the view that HR is a ‘‘soft’’ function for which there are

few hard metrics should focus on employee engagement as a measurement that can be

linked to other HR and business metrics and deliver improved business results. Kate

Feather, a director at PeopleMetrics, outlines the path to effective measurement and

demonstrates the theory in practice in a range of organizations.

Successful businesses function around a set of core metrics supporting the view that what

gets measured gets managed. For a long time metrics such as revenue, costs, profits, units

shipped and defects have been closely monitored, analyzed and researched. During this

time, however, HR was dubbed a ‘‘soft’’ function, with the typical view being that people and

metrics do not mix. While HR has always known the value of its role, the problem has been in

quantifying return on investment for senior management.

Today, there is little doubt in the board room that people make a difference to business

success; they are often labeled the company’s greatest asset. Whether you are a

service-based business that generates revenue through talent that has the ability to create a

PAGE 28 j STRATEGIC HR REVIEW j VOL. 7 NO. 1 2008, pp. 28-33, Q Emerald Group Publishing Limited, ISSN 1475-4398 DOI 10.1108/14754390810847531

Kate Feather is based at

PeopleMetrics,

Philadelphia, PA, USA.

loyal customer base or a manufacturing-based business that relies on talent to create,

process or distribute products, it is the people in the organization that contribute to your

growth, success, or failure.

Many companies struggle to measure these assets in a meaningful way, however. The key

questions HR professionals are being asked are: How can we effectively measure the impact

of people on our business? How do we know that our investments in people are paying off?

Identifying what to measure

Faced with these questions, HR needs to in turn ask itself what it should be measuring. It is

tempting to collect data on a myriad of measures, such as headcount, staff turnover,

absence, accidents, error rates, training hours/spend per employee, customers per

employee, diversity targets, productivity and so on. While these are indeed valuable, without

a measurement framework they can turn into an exercise in measurement for measurement’s

sake. Too many disparate measures without a unifying concept can dilute the message and

potentially position HR as offering tactical, low value add information to business leaders.

By focusing measurement on employee engagement, tying the results to other HR and

business metrics and using the findings to target improvement efforts, some organizations

are demonstrating to leadership the impact employees have on the business and how an

investment in internal processes and programs can boost engagement and ultimately

business results.

The path to effective measurement

There are four steps to ensuring such HR measurement programs are robust and capture

senior leaders’ attention:

1. Measure employee engagement using behavioral and emotional outcomes.

2. Correlate employee engagement survey results to meaningful outcomes.

3. Focus improvement efforts and investments on the high impact/low performing areas.

4. Re-measure to assess success.

Step 1: measure employee engagement using behavioral and emotional outcomes

There are many definitions of employee engagement. Some organizations refer to

engagement as job satisfaction, others talk in terms of loyalty and, still others, in terms of

advocacy or positive word of mouth. Recent research has revealed that engagement is a

combination of both functional and emotional behaviors and attitudes (PeopleMetrics,

2007). Without creating an emotional link with employees, organizations are unable to

sustain high levels of engagement and, ultimately, performance.

Specifically, an engaged employee is positive on the following items:

B Retention. Desire to stay with the organization.

B Effort. Motivation to give more than is required.

B Advocacy. Mindset to actively recommend the company as a great place to work.

B Passion. Feeling an emotional connection, even ‘‘love,’’ for the organization.

‘‘ Too many disparate measures without a unifying concept can dilute the message and potentially position HR as offering tactical, low value add information to business leaders. ’’

VOL. 7 NO. 1 2008 jSTRATEGIC HR REVIEWj PAGE 29

Based upon recent research by PeopleMetrics involving more than 5,000 employees of

companies ranging in size from 50 to 100,000 þ employees, the outcomes of retention,

effort, advocacy and passion are highly correlated with business outcomes. Specifically, the

findings revealed that:

B Fortune 500 companies in the lowest quartile with regard to company profits had 50

percent fewer engaged employees than those in the top quartile.

B When it comes to individual performance, high performing employees were twice as

engaged as their low performing counterparts.

Step 2: correlate employee engagement survey results to meaningful outcomes

The first and critical step in proving the impact people assets have on the business is to

identify the business or people outcomes that are most valuable to the organization. These

will vary by organization but should be easily identified through a review of business

strategy. Two examples are discussed below.

Global brewery links engagement to sales performance. This organization was most

concerned with the productivity of its sales function. In order to get the attention of senior

leaders, the HR department of this large, global brewery set out to prove the relationship

between an engaged sales force and the number of barrels of beer sold in a given period.

Sales teams were divided according to levels of engagement (high, medium and low) and

year-to-date sales were identified for each engagement grouping. This showed that as

engagement increases so does the sales performance of each team. In fact, the difference

in year-to-date sales (measured by the number of barrels of beer sold) between the sales

teams with the lowest and highest engagement scores was 90,000. The value of this to the

organization was easily calculated and an argument for focusing on people and HR

investments was made and supported by leadership.

Proving the causal tie between employee engagement and volume of calls handled in a UK

call center. A government-based organization in the UK was undergoing significant

organizational change. It set out to understand the relationship between call center

employee engagement and the number of calls that were being answered at the call center

level – a key indicator of productivity for this organization. The hypothesis was that as

employee engagement increased so would the number of calls answered.

One of the questions frequently raised by business and HR leadership is: what comes first,

engagement or business results? To address this question for this particular client,

employee engagement and calls answered were measured at two separate points in time.

Time 1 (T1) offered a baseline measure and time 2 (T2), which occurred 12 months later,

offered the opportunity to see how employee engagement and volume of calls answered

shifted over time after interventions to address engagement were introduced. Figure 1

clearly demonstrates that as engagement increased between T1 and T2, so did the volume

of calls answered. Specifically, by increasing engagement an average of 12 percentage

points, the average percent of calls answered increased by five points in the same period.

Step 3: focus improvement efforts and investments on the high impact yet low performing areas

Successful adherence to steps 1 and 2 will result in the ability to demonstrate the link

between people assets and business performance for an organization. The next step is to

show how the efforts undertaken by HR to improve employee engagement are paying off.

Without this evidence, it is hard to secure support and funding for future interventions.

The most effective way to do this is to identify the key drivers of employee engagement and

work on improvement efforts in these areas. Key drivers are those areas in an employee

survey that are found to have the highest impact on levels of engagement through the

application of regression analysis. This is an important nuance for HR to understand and

communicate to the business. Low scoring, weak areas are not necessarily the areas that will

drive desired behaviors from employees. There is a tendency in many organizations to

identify the lowest scoring items on an employee survey and make these central to any future

PAGE 30jSTRATEGIC HR REVIEWj VOL. 7 NO. 1 2008

interventions. This is not advised; instead it is critical to understand the most important

drivers of employee engagement.

Frequently, employees give low scores to parts of the work experience that will not make or

break their commitment and engagement levels. Compensation is often an example of this.

Very rarely does compensation receive high scores but likewise rarely is it found to drive

employee engagement. By using statistical techniques that derive the importance of various

aspects of the employment relationship, organizations are much better equipped to make

decisions that will positively impact engagement and business results. Thus, a best practice

approach is to identify the high impact yet low scoring areas and focus efforts for

improvement on these areas – bearing in mind, of course, ease of implementation and

alignment with other business and HR initiatives in the decision-making process. Two

examples are discussed below.

Hospital system finds a culture of caring is the heart of its engagement strategy. The

organization in question is a large hospital system located in New England with 11,400

employees and 2,519 physicians. The hospital understands the importance of employee

engagement as a driver of staff retention and patient quality outcomes. The mission of the

HR function in this hospital system is to assist the hospitals and their partners in achieving

their goals of being the employer and provider of choice in the communities the hospitals

serve.

The organization takes a holistic approach to measuring and improving employee

engagement. The executive vice president of HR has said that one of the most critical

aspects of its measurement system is to ensure that HR and business leaders are not

‘‘bumping around in the dark’’ with regard to their people strategy. By surveying employees

on a biennial basis to identify the key drivers and then conducting regular pulse checks in

between to ensure efforts are reaping the desired results, the system has been able to

capture clarity and focus with regard to the ‘‘make a difference’’ areas.

This organization learned that the highest impact/lowest scoring driver of engagement,

consistently across all hospitals and the corporate functions, was ‘‘the hospital/division

cares about its people.’’ Having learned this, each group was tasked with developing and

executing its own action plan to impact positive perceptions in this area. Table I outlines

actions taken by one hospital and the corporate group to positively affect views of a ‘‘caring’’

culture. A discussion of the impact of these efforts is contained in step 4.

Regional bank finds reward, recognition and a culture of service excellence matter most to

employee engagement. One regional bank in the US first measured employee engagement

in 2006. At that time, the data revealed that employee engagement has a strong, significant

impact on customer perceptions and behaviors. This analysis put employee engagement

Figure 1 Engagement between T1 and T2

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squarely on the agenda for the senior leadership team. The bank made a commitment to

improve engagement levels by focusing on the top three drivers of engagement revealed

through the 2006 survey. These were:

1. A commitment to delivering exceptional service as evidenced through scores related to

‘‘excellent service is rewarded and recognized here.’’

2. Rewarding and recognizing employees’ contributions.

3. Feeling fairly compensated.

Furthermore, there was evidence that employee engagement levels were being pulled down

by retention scores and the bank had experienced some turnover in key positions.

Employees also mentioned in the survey that they perceived a lack of commitment from

leadership with regard to the retention of top talent.

Over a 12-month period, the bank developed and implemented a series of initiatives aimed

at increasing employee experiences and perceptions in these core areas. Specifically, the

organization determined that the first two drivers could be worked on together. A set of

clearly defined service standards (internal and external) was rolled out and a recognition

program based around employees’ performance on these standards was launched.

Employees are nominated for quarterly awards based upon their behaviors and results in

line with these customer service standards.

A thorough review of pay bands was also carried out, following which a new more

competitive pay scale was introduced for all employees. In addition, employees in

professional positions were offered new deferred bonus and stock appreciation plans.

Following a year of intensive effort a follow-up pulse survey was administered to gauge

effectiveness of the initiatives deployed and determine the impact on employee

engagement.

Step 4: re-measure to assess success

The final step along the measurement path is re-measurement. Pulse checks or census

surveys can be carried out to measure changes in employee perceptions around the areas

that have been worked on. This will prove to leadership the value of the work undertaken in

driving a high performing organization. Returning to two of our previous examples, the

following results were found.

Hospital system learns that focus on caring pays off. Having worked diligently to improve

perceptions of caring during a 12-month period, the hospital system conducted a pulse

survey with a random sample of employees. The survey was designed to measure change in

Table I Actions taken to positively affect views of a caring culture in a hospital system

Hospital A Corporate group

Enhanced caring through: management visibility plan; development of pay practices that demonstrate fairness and respect; consistency of application policy; and management training

Improved caring through rewards and recognition initiatives: team to evaluate current rewards and recognition (led by COO); and communication and education regarding compensation and benefit package to staff

Caring through career development: HR staff available for career development/counseling; and improved communication to internal candidates for open positions

Increased caring through enhanced communications: joint meetings of directors and managers; bulletin boards installed on each floor of the building with events and job listings; employee forums with the CEO; corporate newsletter to highlight a corporate department each month; regular e-mail communication to employees listing actions taken in response to issues raised in the survey; employee suggestions solicited in workshops, brown bag lunch sessions, etc.

PAGE 32jSTRATEGIC HR REVIEWj VOL. 7 NO. 1 2008

employee engagement and views of the key drivers. Engagement increased by 10 and 8

points in a 12-month period for the hospital and corporate groups. Favorable views of the

caring element also increased by five and nine percentage points, respectively.

Regional bank’s efforts to improve areas that make a difference result in significant positive

change. Looking again at the regional banking example, a pulse survey among all

employees but including only questions to measure employee engagement and views of the

key drivers was carried out 12 months after the initial baseline. The results showed that

significant improvement was made during this timeframe, providing evidence that focusing

on the top areas shown to drive employee engagement results in real improvements.

Specifically:

B Overall engagement with the company increased by five percentage points.

B Employees’ views of how employees are rewarded and recognized for excellent service

increased by 17 percentage points.

B Perceptions of fair compensation increased by nine percentage points.

B Leadership’s commitment to retaining top talent improved by 12 percentage points.

B Overall views of contributions being rewarded and recognized improved by five

percentage points.

In conclusion

Effective measurement is an essential skill for HR professionals to master if the HR function is

to firmly position itself as a strategic function with a ‘‘place at the table.’’ Yet, many

organizations still believe that HR is in the business of ‘‘soft and fluffy,’’ un-quantifiable

metrics. Thus, determining a measurement approach that is focused on proving the link

between human capital and business results, as well as the relationship between HR

interventions and people performance, is a powerful strategy by which HR can change the

way it works and the value it is perceived to create.

Reference

PeopleMetrics (2007), ‘‘PeopleMetrics’ self-funded research into employee engagement’’, Philadelphia,

PA, January.

About the author

Kate Feather is director of people engagement practice at PeopleMetrics. She has over 15 years’ professional experience in customer and employee research. She was previously a senior consultant at Hewitt Associates. Kate Feather can be contacted at: [email protected]

VOL. 7 NO. 1 2008 jSTRATEGIC HR REVIEWj PAGE 33

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