Have you heard the phrase: “You can tell a lot about a person by their shoes” ? Well, the same principle applies to any organization: you can tell a lot about a company and its leadership by what they measure.
On one occasion, I remember that I inquired about the metrics of the HR function, and I was given a set of two pages that were full of turnover ratios sliced in ten different ways.
As I like to put it, you can slice the apple in a variety of ways, but it is still just the same apple! In this case, those two pages were just one operational measure: turnover.
Although operational and financial indicators should be monitored, a company will never be able to change direction or transform itself if these are all that is being tracked.
If change and transformation is what you’re searching for, you must start by redesigning your business performance indicators so that they can effectively act as the steering wheel or GPS that they can be.
In a 2020 i4cp article, it was reported that “Top companies report business-boosting returns on their well-being investments, but fewer than 40% of all companies assess well-being program effectiveness.”
This poses the question, how do companies, and specifically human resources, know when to change direction? If HR groups are not measuring the right things then they are effectively operating blind and their decisions are likely based on the past versus the future.
I first introduced this concept in my article How To Ensure Your Talent Management Efforts Will Generate Sustainable Change where I indicated that, by shifting attention to leading organizational indicators that are directly linked to the company’s strategy, the HR function can give its talent management system the best chance to succeed.
In this article I go further and focus on the why and the how of selecting the right performance metrics worthy of a human resources function of the 21st century.
From lagging to leading metrics
The set of metrics or indicators that HR and senior leadership monitors represents how they define success, and, consequently, what can be expected from the function within the business ecosystem.
Therefore, if the expectation of the HR function is to be an operational unit only, then the metrics attached to their performance should be operational in nature e.g. number of open positions, number of promotions, % turnover, number of training programs completed, % of BIPOC employees, employee productivity, etc.
However, that would be a significant missed opportunity because the HR function should be held to a higher standard and be elevated to drive decisions that enable the long-term objectives of an organization. Talent decisions are made to impact the future of a business, not its past.
So, what should human resources be tracking?
A modern HR function should have talent metrics that are primarily strategic in nature and heavily concentrated in leading versus lagging indicators.
Leading indicators enable the function to course correct as needed, while lagging indicators are simply a reflection of something in the past without the opportunity to correct.
For example, % turnover is a common lagging metric that is calculated once employees leave an organization.
Additionally, HR should be tracking empowerment or degree of employee autonomy because it is a leading indicator of the risk an employee may leave—they will give themselves the opportunity to take necessary actions to prevent unwanted turnover.
Don’t get me wrong, operational metrics are valuable because they do allow the HR function to become more efficient, but, in a world of constant and rapid change, efficiency is no longer enough to build a competitive advantage.
Metrics you should be tracking (and how)
Developing the right set of metrics is as much an art as it is a science.
Step one is to ensure that the talent management metrics are linked to the company’s strategic outcomes.
Step two is to select leading indicators that are tied to the role of the HR function in those strategic outcomes, which will then foster a more proactive versus reactive approach to change.
Step three is to periodically collect, analyze, and interpret the data to course correct as needed.
I’ll unpack these in a little more detail.
Step 1: Ensure talent management metrics are linked to the company’s strategic business outcomes
By doing this, the HR function guarantees the development of the type of talent that the company needs.
To complete this exercise, the HR function must work directly with business leaders and be super clear about the strategic direction of the company.
Emphasis should be put on the enablers of the strategy as it relates to talent: people skills, leadership brand, and culture.
Remember, the set of indicators you choose will also need to evolve as the company achieves its strategic business outcomes.
Step 2: Select leading indicators that are tied to the role of the HR function in those strategic outcomes
Lean heavily on leading versus lagging indicators. As we reviewed before, such an approach will foster a more proactive talent management decision-making process.
To do that, an upstream or system thinking skill set is required. This is the artistic component of this process, so being able to easily connect the dots and challenge the status quo is beneficial.
Also, less is more, so select just a handful of the most impactful indicators that will provide you with the necessary information to make timely decisions. In all cases, do not go over five to seven indicators (I’ll give you some examples further down).
Step 3: Periodically collect, analyze, and interpret the data.
The purpose of having measures is to enable timely decision-making, hence the need to periodically collect the necessary data related to the chosen indicators.
But don’t stop at just collecting the information, bring it to the next level by analyzing and interpreting what the information is telling you.
With the rapid advancement in human resources technologies, the possibilities are now almost endless.
If your teams are spending too much time collecting the information, it is likely that you’re collecting too many data points and need to narrow it down.
Choose a frequency that makes sense for your company and your HR team, is a long enough time horizon that allows for variability, yet also is not so long that it does not allow for course correction. In general, I recommend a quarterly period.
Also, ensure you’re incorporating diverse perspectives into the interpretation of the information collected. In particular, make sure you’re inviting business leaders alongside HR leaders as this helps create alignment.
Below I give three illustrative examples of strategic and leading measures for a company’s talent management system. There is no one size fits all, thus each company will have its own unique sets of metrics and/or indicators.
The key is to ensure that the chosen metrics follow the 1-3 steps I mentioned previously.
Metric one: Learning Agility
An organization’s capability to learn is a leading indicator of its capability to innovate.
In a world where the pace of change is only increasing, learning agility becomes a much better predictor of talent potential.
There are several possibilities for leading indicators, for example:
- Number of new strategic skills mastered
- Percentage of employees participating in idea crowdsourcing
- Ratio of strategic skills shared versus acquired (pro tip: completing a training only demonstrates acquisition, the ultimate indicator of learning is knowledge sharing).
Metric two: Change Resilience
A company’s ability to adapt is foundational for its survival, thus adaptability is strategic in nature.
In a business environment where change is the only constant, it demands that employees are able to build a resilience to it so change becomes part of the day to day of the organization rather than an isolated set of events.
In this regard, there are several possibilities for leading indicators, for example:
- Number of requests for dedicated change managers
- Percentage of leaders actively embracing change communication
- Ratio of leaders sharing failures over leaders sharing only successes.
Metric three: Agnostic Career Pathways
The value of diversity goes beyond the physical appearance of teams. Diversity of thought propels rich business discussions and stronger problem solving, ultimately resulting in faster decision-making.
For that reason, diversity is a must when it comes to strategic business outcomes. To develop a diverse talent pool, an HR function must provide employees with a wide set of experiences beyond the traditional vertical career pathways.
This will strengthen an employee’s ability to see a problem from multiple perspectives and challenge the status quo more often. Here, there are several possibilities for leading indicators, for example:
- Talent mobility index (the way a company measures talent mobility leveraging multiple factors)
- Number of cross-functional teams
- Ratio-agnostic career pathways vs. vertical career pathways.
Don’t lag behind, lead ahead
When it comes to measuring the success of talent management strategies, companies must aim higher than they have in the past.
It’s not just about filling up job positions, moving talent internally, or guaranteeing high productivity, it’s about the business outcomes those actions translate into.
Talent is the most critical, and one of the most expensive, resources a company has to achieve its strategic objectives, so continuing to measure its success on the basis of solely operational indicators will ultimately ensure the company’s talent management process will miss the mark.
In the 21st century we should expect more from our HR function. We should expect CHRO’s to set talent metrics that are directly linked to the company’s strategic outcomes and heavily concentrated in leading versus lagging indicators.
The HR function should be held to a higher standard and be elevated to drive decisions that enable the long-term objectives of an organization. Remember, talent decisions are made to impact the future of a business and not its past.
Feel free to ask any questions in the comments or connect with me via LinkedIn.
Some further resources to help:
- People Ops As A Product
- How To Approach Human Resource Management In SMEs
- How To Run An Employee Journey Mapping Project To Improve The Employee Experience
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