People, Systems|

The balanced scorecard has popularized the idea that organizations should regularly measure and monitor key metrics about people. And if there are data available that describe what is going on with the people in your organization, what’s the harm in reporting them? Isn’t more information better than less?

The answer is “yes and no.” Sticking your head in the sand and acting as if there are no data to inform human capital decisions ignores reality. But reporting HR data simply for the sake of sharing is not smart. If you present data without knowing its full value and how to act on it, you will create more problems than you solve. You need a model of what’s driving the behavior you’re observing and why you should care about it.

Consider turnover. What is the “right” level of turnover? In a call center, 50% annual turnover could be a cause for celebration, while 15% turnover for nuclear power plant engineers could be a disaster. The only way to tell the story the right way is to provide further information about the context. Many call centers have annual turnover in excess of 100%, so getting to 50% could be a great achievement. There are a very limited number of nuclear power plants engineers in most countries, so losing even one can create issues for the companies running these plants. If you report only turnover in your scorecard, and don’t embed that information in the larger organizational context, you open the door to people taking action in ways that don’t promote the business’ bottom line.

What about “regrettable” turnover, the label given to losing high performers? Don’t you want that turnover as low as possible? Not necessarily. In order to attract high performers, you may have to offer them opportunities to contribute and grow, along with a clear path to moving on to bigger and better things elsewhere. If the cost of getting high performers to come work for you is that you will lose them in one or two years, then losing them could be a good thing. It’s certainly better than not getting them in the first place. Lower turnover might be attainable only by hiring people with less ability to begin with, and then productivity and profits would suffer. What matters is not just the transaction costs of turnover (the costs of developing, retaining and replacing people in key positions), but also their contribution to productivity and strategy execution while they are working for you. Turnover statistics alone can’t tell that full story, even when it’s “regrettable” turnover.

The larger problem is that HR scorecard data need to be actionable and meaningful, not just available. If you want to move the needle in helping your organization improve strategy execution, most data that can be put in HR scorecards don’t fit the bill. Retention (the opposite of turnover) doesn’t reveal if the people working for you are doing the actions needed to add to your competitive advantage and increase organizational effectiveness.

Or consider safety data. Safety data are usually readily available, easy to understand, and we certainly want our employees to be safe. So why not populate a scorecard with safety data? If it’s a manufacturing, construction, or mining operation, or some other type of work that involves heavy machinery and bodily risk, then safety is a very important metric. Putting it into a scorecard to hold managers accountable is a good idea. But be aware of these two caveats: (a) the metric is best used only in the parts of the organization where there is the greatest risk, and (b) even in those cases, it’s not necessarily useful for improving strategy execution. Safety may be more of a status quo metric: you definitely want to maintain safe operations, but that may be irrelevant for improving margins, market share, customer retention, and so on. Is it useful for monitoring and holding managers accountable? Absolutely. Strategic? Not necessarily.

If you want strategic HR measures, you have to start with causal models of what’s driving business performance – and what bottlenecks get in the way. If your strategic priority is to increase innovation, what levers need to be pulled in terms of people and processes? If it’s customer retention, what roles are best positioned to make a difference, and what do they need to be doing? If it’s your go to market strategy, where does the business need the most help?

Building the causal model that links people to the organizational outcomes that matter will lead you to the relevant HR and human capital measures. The measures needed to track progress usually aren’t sitting around waiting to be reported (in contrast to turnover and safety), so you won’t get to a fully populated HR scorecard overnight. But they can be measured with sufficient investment of resources to build the reporting systems, which will guarantee a strategic contribution – once you know the right things to measure.

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