Metrics that matter
Staffing metrics have evolved from rough estimates on absenteeism to complex studies that evaluate every aspect of human-capital measurement. Along the way, the issue of what to measure has become as important as the old issue of how to measure.
Stephen Adams, regional HR manager in the sales process area for Progressive Insurance Companies in Mayfield Village, Ohio, says that about three years ago, his department looked at metrics like cost-per-hire and retention—and asked how they were adding value. “We put together an HR scorecard, so the HR person in a meeting could speak with authority. We could talk about turnover at a specific site, for instance, and how it affected profit.”
His department began generating reports and sharing them with site managers. “We told them: ‘Here is the dollar value of what’s going on with your site compared to your peers.’ Or, ‘This site is having a high cost-per-hire or high turnover, and this is what it’s costing,’ ” explains Adams. “HR became more credible.”
Nick Burkholder, president of Staffing.org, a nonprofit organization, points out that just the act of measuring helps. “If you measure, performance improves,” he says. HR often concentrates on measuring activity, however, and Burkholder stresses that HR should instead measure outcomes. “This may be where HR needs to change its focus.”
Joe Murphy, principal, Shaker Consulting Group Inc., in Cleveland, agrees that HR has to get away from focusing on transactions. “Instead, they should be focusing on outcomes that are capacity enhancing.”
Recruiters, for example, should know the difference between an average and an above-average performer in the workgroup they’re hiring for. “Recruiters need to ask the hiring manager what that difference is, because it isn’t always just competency or skills,” says Murphy. “It could be ‘making 37 widgets per hour’ if that’s the key factor for performance. A metric like cost-per-hire has nothing to do with increasing the output of the business.”
Murphy says that one way to decide which metrics to pursue is by asking hiring managers: What number does your boss beat you up on? “That number will be the heart of the metric that matters for that hiring manager,” says Murphy.
When Jim Irvine, HR specialist III at Nissan North America in Irving, Texas, first joined the company, he found a combination of U.S. and Japanese business practices. “Five years ago, our HR department was measuring all the standard areas, which are definitely important to help compare regions, affiliates or global issues.”
However, Irvine decided to go a step further and asked hiring managers what their biggest issues were. “Their concerns were profitability, customer satisfaction and employee satisfaction,” he says. Based on these concerns, Irvine decided to tackle a high turnover problem in the collections department.
Irvine says that Nissan’s overall hiring practice focused on the wrong types of job candidates. “We really needed … people who could do monotonous work. When we changed the type of people we hired, we dramatically reduced our turnover and learning curve.”
Irvine’s effort to discover the reason behind the numbers demonstrates a new trend: a move beyond tabulation and reporting, and toward manipulating the action that affects the metric.
Using an analogy, Murphy explains that a distribution manager, for example, will approach the company’s CEO with a proposal to invest in something like a new conveyer. “The argument is that the current distribution center is too limited; with another $100,000, we can output 1,250 units instead of the 1,000 we do now, at a profit of so-and-so,” he says.
Likewise, HR should build a business case to show future value of a business process. “Think of all the time and energy HR uses to take 10 percent out of current costs, leaving people doing more with less,” says Murphy. “Compare this to investing the same amount of time and energy into a performance increase that has value in the future. HR must stop talking about cost reduction and talk about value creation.”
The most painstaking metrics won’t solve problems, though, unless the time is taken to analyze their meaning. “You have to know what factors are causing a problem before you address it,” says Cheryl Spokane, senior product manager in HR at Cleveland-headquartered financial-holding company National City. “It’s all about isolating why.”
High turnover in their customer contact areas was the red flag that led National City to examine its hiring practices. “We decided we needed to do something very different in terms of how we bring people in,” says Spokane. After deliberating on a number of different approaches, the company concentrated on ensuring that candidates were suited to their jobs.
“We put assessments in place for key incumbent positions,” says Spokane. “At that time, business units within the company were all over the board with how they measured objective performance. It was hard to collect consistent data.
“Among other things, we developed a core competency model and pinpointed success factors.” With the help of organizational psychologists who performed statistical analyses on test data and performance metrics, the company documented that its assessment tool did determine success.
Changing the company’s hiring approach brought a lot of pluses to the staffing function. “We’ve defined consistent selection criteria across the board and developed interview guides that both recruiters and hiring managers use,” says Spokane. “We did a second validation study and found that scores and performance do correlate.”
Making an Impact
Sorting through how and what to measure is never easy. Based on a compilation of experts’ advice, here is one way to zero in on metrics that matter:
1. Begin your program with a solid foundation of basic metrics: cost-per-hire, turnover, offer-to-acceptance ratio, etc.
2. Ask managers what issues concern them – what impacts productivity, increases profit, makes their lives easier?
3. Based on managers’ responses, determine which metrics affect these areas, then determine which measures provide results that clarify the value of staffing and recruiting.
4. Benchmark what good companies are doing in terms of these specific metrics. Don’t spend valuable time on benchmarking until you know which metrics are important to your company.
5. Take a numerical snapshot of your present situation.
6. Analyze the outcome of any proposed action. Will you save money, create higher quality or eliminate waste?
7. Decide what tools you will need in terms of technology and outside assistance. The first in-depth analysis of the “why” behind the metric will be the hardest, say experts, and you may need some help in putting together assessments, validity studies and other measurements.
8. Make a business case for the action and outcome you decide to pursue.
9. Show managers updated reports (via metrics) on how HR has contributed to their success.
Spokane says that the business units see a better quality employee and have absolutely embraced the new system. She saw proof of this when she offered to suspend the new hiring process for the direct banking call center because of some computer problems. “The section refused,” she says, because the process was so vital in identifying quality employees. “And when I discussed an exception to our selection policy with a recruiter, the recruiter declined.”
Though Spokane says that a number of initiatives contributed to National City’s declining turnover, she notes that the 2000 figures for full-time turnover (71 percent) and part-time turnover (81.2 percent) dropped to 50.4 percent and 52.7 percent by 2002.
Now that the company’s business units are comfortable with the new staffing procedures, Spokane says, “We are ready to go to the next level to see how these new initiatives affect the bottom line.”
Determine Which Metrics Are Most Important
Spokane says the HR team zeroed in on the types of measurement that were worth using when National City overhauled its hiring practices—and eliminated processes or metrics that did not add value. For example, a former metric used to screen for successful workers—keyboarding skills—probably wasn’t as relevant as they had perceived it to be.
“We analyzed what really mattered most in doing the job,” says Spokane. “And the relevant skills for front-line employees were being able to do things like call Grandma, who co-signed for a loan that’s not being paid.”
Since National City’s focus is on metrics that fit the company, Spokane says that HR relies on custom rather than off-the-shelf tools to get at the points they really need to measure. “In the past, we used off-the-shelf products and tailored them somewhat in order to map to our competencies and National City,” Spokane explains.
“But this year we’ve rolled out a branch-manager tool that was built specifically for the position. Its content, look and feel represents National City—our brand and our marketing. It looks and feels like us to the candidate,” she says.
According to Spokane, the advantages of custom tools are worth the price. “All questions are given from the context of National City’s environment and what the job is like at National City. The candidate gets details of the actual job and some of the day-to-day activity. And our output reports from a custom tool are more useful and user-friendly to our hiring managers.”
Though the payoff for making the changes that metrics point toward can be substantial, Murphy acknowledges it’s a large effort. He suggests the 80/20 rule in determining where to start: “Eighty percent of your hiring may take place in 20 percent of your jobs so look at those jobs that have the most hiring volume—that’s where you’ll make the greatest impact.
“Look at what drives the staffing needs of the organization,” Murphy continues. “What positions have the highest turnover, or where do you have the greatest need? You have to weigh how much time and energy you’re putting into measuring something—it needs to matter.”
In Murphy’s opinion, turnover is a metric that is worth tracking. “Manufacturing companies look at waste and go after waste factors like maniacs,” he says. Typically, “HR doesn’t pursue that waste with the same passion.”
Human capital waste can take many forms and includes expenses that result from turnover, excessive hiring costs, poor fit/lost productivity and managerial distraction. At Progressive, Adams found that cutting waste led to other efficiencies he hadn’t anticipated.
“We were opening a field office (in 1997) and needed to hire lots of people quickly,” says Adams. “We didn’t have many managers, so I wanted to find a way to cut down on interview time.”
A process was created that included a realistic job preview to identify candidates who were a good job fit. “This way, we didn’t waste our managers’ time by bringing in people who weren’t going to work out,” Adams explains.
“When you hire as many people as we do, managers are distracted from their core activities to interview,” says Adams. “Now we can present them with people we know have the competencies they need, and the managers can interview for attitude and motivation, which is best done face to face.”
After resolving that problem, Adams says managers’ needs morphed somewhat: The sales process area had a problem with a less-than-desirable pass rate for workers who needed to take a state licensing exam.
“The system we had instituted to save management time held a lot of useful data, so we took that data and correlated it to performance,” says Adams. As a result, HR found a factor that had a 90 percent correlation for the pass-rate dimension. “We tweaked our scoring to focus on that dimension, and increased our pass rate by 15 to 18 percent,” says Adams. Thousands of new hires in sales and service have since passed through the new system.
“There are true benefits to taking the time to measure,” says Adams. “I initially wanted to reduce our time to hire, and found the surprise correlation to pass rates. We ended up getting the best people as a result.”
Adams also discovered a “back-end” benefit. “Because we’re bringing in people who are better qualified and can pass the licensing test, our 90-day turnover (the time during which the test is taken) has dropped significantly.” He adds that jobs can change over time, so HR reviews its job simulation and testing system every 18 months.
Finding the Meat in Your Metrics
Experts agree that it can be hard for HR to know what to do with the measurements they gather or to discover how certain metrics will have a positive impact on profits or productivity.
“This is where HR’s consulting skills come into play,” says Burkholder. “Help your client to help you.” He explains that most hiring managers would tell HR: I want candidates who are perfect, cost no money and can start tomorrow. The trick, of course, is “to go back and forth to define their true needs and what’s really important,” says Burkholder. “Then you concentrate on measurement.”
When Irvine tackled his company’s problem in the collections department, he had to first talk to managers. “Our front-line collections people are entry-level employees who call people to find out where the money is,” says Irvine. “Managers told us that they had high turnover and unhappy employees—and wanted me to hire better employees.”
Irvine began digging for information. “I asked, ‘What do you want your department to look and feel like, ideally?’ The managers started talking in generalities: ‘I want people who like their jobs and stay.’ ”
Irvine then asked what that scenario would look like and followed up with additional requests for direction. “Would you want them to treat customers well?” he asked. When managers agreed, he asked, “What would treating customers well sound like?”
At the time, managers in the collections department used a quality measure in which supervisors rated each agent on things like professionalism, demeanor and tone. Irvine asked managers if they thought supervisors were consistent, and, when managers acknowledged that they probably weren’t, he asked them what professionalism should look like.
Likewise, a quantitative measure the department used was the number of calls for each agent, but again, Irvine probed. “I asked, ‘Is that what you want, just a call?’ and no, they wanted contact. ‘Is that all you want?’ Again, no, they wanted dollars collected, so now we discovered a money issue.”
Finally, Irvine started asking about turnover. “I asked, ‘What kind of turnover do you want?’ and they said ‘none.’ ‘Really?’ I asked. ‘No promotions, no possibility of a bad hire?’ And of course, they realized that some turnover was OK.”
Irvine expended substantial effort to find out what was happening at the moment. “For HR to be held accountable down the road, you have to measure where you are now,” he says. Additionally, his probing helped managers understand what they really wanted so that HR could help them with appropriate measures and strategies.
Irvine eventually lowered the department’s 1999 attrition rate of 91 percent to 55 percent in 2000, then to 16 percent in 2001, and finally, to less than 10 percent in 2002.
“Now this department is so pleasant that no one wants to leave,” says Irvine. “Since these are entry-level positions, we want some people to leave through promotion, so we’re actually trying to get our turnover back up to 15 percent.”
Irvine says that his effort to use metrics this way was a hard sell at first. “When you’ve got 90 percent turnover, you just don’t have time,” he says. “HR departments are probably understaffed and overworked just about everywhere. The squeaky wheel for HR is not the collection of data,” Irvine says. “It’s process, the tyranny of the urgent, like making phone calls.”
However, his persistence made believers out of the people who saw the results. “We figured out that it costs about $37,000 to replace an individual, counting traditional HR expenses, training costs and the impact of their learning curve,” says Irvine. “By reducing turnover in a single department of 51 people, we saved $1,008,000 from 1999 to 2001.
“Additionally, we discovered that the performance difference (using quality and quantity measures) between the average worker and a new one was 30 percent. We reduced the learning curve by 50 percent by getting the right people,” Irvine adds.
Because HR backs up its value with solid numbers, Irvine says that his department “can justify its existence at the drop of a hat. We have waiting lists of people who want HR to do projects.”
Where To Start
“People are the second or third line item in a budget, yet up until now, HR hasn’t had a handle on this budget item,” says Greta Sherman, managing partner with JWT Specialized Communications in Louisville, Ky. “Every other department knows what a table costs, but do we know how much a person costs? You don’t know your ROI if you don’t know what the investment was.
“Metrics start to tell a story about where the problems are,” Sherman explains. “If one unit has high turnover or high vacancies, that tells you something. Sometimes the problem is obvious, like a poor location, but metrics can also detect problems like managers who need more training.”
Sherman believes in the importance of six indicators: cost-per-hire, days-to-fill/start, vacancy, retention, turnover and increased universe (the size of your employee base at given points in time). “These indicators measure time, cost and quality,” she explains.
People don’t always feel comfortable with numbers, but Sherman emphasizes that metrics aren’t really intimidating. “If you file an EEOC report, you can take that report and in 45 minutes figure out retention, vacancy and so on. There are lots of nuances, of course, but you have to know the monster you’re facing.
“If you see high turnover, you need to find out why your people are leaving and what would have made them stay,” says Sherman. “If you have managers who chew up people and spit them out, the answer isn’t to get more people; the answer is to retain them.
“This is where you ask: Should we be doing exit interviews? Do we have managers who know how to build teams?” Sherman says that all this digging “paints a picture so you can attack the problem rather than say ‘I have another order for a body.’ ”
Sherman understands how difficult it can be for HR to break from its routine to create a good metrics program. “People tell me ‘I don’t have time’ or ‘I don’t know where to start,’ but I tell them ‘you can, and it will change your world.’ ” She emphasizes: “Take baby steps if you need to.”
Likewise, Irvine says that HR doesn’t need to change the whole organization at once. “Instead, start by picking a department manager who gets his eyes opened and gets excited.” His experience has been that when HR makes that person look good and backs it up with numbers, others want to follow suit.
“If we don’t want to be irrelevant and obsolete, we need to find ways to add value and provide solutions,” says Irvine. “You don’t have time to measure, but you can’t afford not to.”